The Tax Reform introduced by Constitutional Amendment No. 132/2023 seeks to modernize consumption taxation in Brazil through the creation of the Tax on Goods and Services (IBS) and the Contribution on Goods and Services (CBS).
However, the lengthy transition period, which will extend until 2033, combined with the need for regulation through supplementary laws, creates a scenario of significant legal uncertainty. In this context, specialists, institutions such as the National Council of Justice (CNJ), and even the Superior Court of Justice (STJ) project a substantial increase in litigation, with the potential to triple the volume of tax disputes in the coming years.
Below, we present 5 key points of attention related to the expected growth in tax disputes in the post‑reform period:
1. Jurisdictional Competence Conflicts: Determining which branch of the Judiciary, Federal or State, will adjudicate disputes involving the IBS and CBS is likely to become one of the main sources of litigation. Since both taxes will apply to the same taxable event, namely transactions involving goods and services, parallel disputes and overlapping claims are expected. This scenario may encourage strategic forum selection, generate conflicts of competence, and increase legal uncertainty and costs for taxpayers.
2. Complexity of the Transition Period: Between 2026 and 2033, Brazil will operate with two coexisting tax systems: the current one (ICMS, ISS, PIS, COFINS) and the new one (IBS, CBS). Tax assessment will become highly complex due to the gradual reduction of the old rates and the increase of the new ones. This overlap of rules will be fertile ground for calculation errors, interpretative divergences, and consequent disputes over which legislation applies at each moment of the transition.
3. Disputes over Full Non‑Cumulativity and ICMS Credits: Although the reform promises full non‑cumulativity, defining what constitutes a “credit” and the rules for its appropriation will remain contentious. Disputes are expected regarding the right to claim credits in specific operations, such as the acquisition of goods for use and consumption. Furthermore, the transition of accumulated ICMS credit balances from the old system to the new one will be particularly sensitive, with strong potential for disputes concerning the method and timeline for their utilization.
4. Disputes over Tax Rates and Tax Bases: The definition of IBS and CBS rates and tax bases, to be detailed in supplementary law, will undoubtedly be the subject of intense judicial debate. Companies will likely challenge the application of specific regimes, exemptions, and the inclusion or exclusion of certain amounts in the tax base. The way the new taxes will apply to different sectors and transactions will open space for legal arguments aimed at reducing tax burdens.
5. Impact on Contracts and Sector‑Specific Regimes: The restructuring of the tax system will require the reevaluation of all long‑term contracts, from commercial agreements to legal fee contracts, to adapt them to the new pricing and tax incidence rules, which may generate contractual disputes. In addition, sectors benefiting from special regimes, such as the Manaus Free Trade Zone, will face disputes concerning the proper application of these rules and competition with other sectors of the economy.
In sum, the search for legal certainty amid such a profound transformation will inevitably lead to intense judicial activity. Lawyers and companies must prepare for a prolonged period of uncertainty and the emergence of a broad new field of tax litigation, making close monitoring of the forthcoming supplementary laws essential to understanding the contours of the new system.
