Manufacturers may be entitled to expand their use of ICMS credits based on intermediate products.
The Federal Supreme Court (STF), in its ruling on Issue nº. 1465 (RE nº. 1.424.015/SC), will decide whether materials used in the production process can generate ICMS credits, even when they are not part of the final product.
Currently, state tax authorities restrict these credits solely to materials incorporated into the final product or fully consumed in the production process.
On this subject, we highlight 3 points that deserve attention:
1. What are intermediate products, and which ones can generate credits? Intermediate products are materials used during the production process that are not necessarily part of the final product but are used in the manufacturing process. The debate centers on determining which of these materials entitle the taxpayer to an ICMS credit. While state tax authorities tend to restrict the use of credits to items incorporated into the final product or consumed immediately, we advocate for a broader interpretation that considers materials essential to the production process.
2. The Superior Court of Justice (STJ) has ruled in favor of taxpayers, but the decision is not yet final: The STJ has established a consistent position that the use of ICMS credits does not depend on whether the intermediate product is fully and immediately consumed or incorporated into the final product. Since the discussion involves the interpretation of the Federal Constitution, it will be up to the STF to definitively resolve the issue in its ruling on Case nº 1465.
3. Companies should review their credit systems and evaluate legal action: Manufacturers that use intermediate products in their production processes should review the materials currently used and assess whether there are any unused ICMS credits. Given the possibility that the STF may limit the scope of the decision’s effects, taking legal action is essential to safeguard the right to credits relating to the period prior to the ruling.
The STF’s ruling will have significant implications for industries, especially those with high consumption of intermediate materials. In addition to reducing the tax burden, it will improve operating margins and have positive effects on companies’ cash flow.
Given the possibility that the STF may limit the effects of the decision to cases already filed, it is recommended that industries that use intermediate materials in their production processes consider filing a lawsuit before the decision is rendered.
This step may be important to ensure that they fully take advantage of the benefits resulting from a potential favorable decision.
