Tax | Brazilian Supreme Court Decision on Tax Case That Highlights the Importance of Sustainability for Brazilian Companies

The Brazilian Supreme Court (STF) has rendered a key decision in a tax case that emphasizes the growing importance of sustainability for Brazilian companies.

It was set that expenses with the purchase of recycled materials give right to credits derived from the Federal gross receipt contributions (known as PIS and COFINS), when subjected to the “non-cumulative” regime. The credits were being denied according to a law from 2005 that was found unconstitutional by STF.

The main reason for the unconstitutionality of the law is that companies had right to credit while purchasing materials from extractive industries (raw materials), but not when buying recyclable ones. So, the scenario was that environmentally responsible companies were dealing with a heavier tax burden, which indicates a lack of congruence between the law and the Constitution.

Among others, the Brazilian Constitution guarantees that everyone has a right to an ecologically balanced environment and the possibility of different treatment according to environmental impact of goods and services as an economic policy.  

Now, companies can try and recover tax credits from the past 5 years and use credits to calculate the due taxes from now on with certain legal certainty, which is a major victory. In practice, the economic effect is that these expenses will be deducted from the contributions’ calculation basis.

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