João Paulo Muntada Cavinatto and Rafaela Canito*
Complementary Law No. 194/2022 (LC 194), published by the National Congress on June 23, among other things, substantially reduces the ICMS levied on electrical energy operations.
The reductions result from the recognition of two fundamental conditions: the essentiality of the sector, which obliges states to reduce the state tax on the sale of energy to general rates (between 17% and 18%) and the non-incidence of ICMS on Tariffs of Use of the Transmission and Distribution System (TUST and TUSD), linked to these operations.
In theory, if the constitutional text is followed to the letter, the federative units are immediately obliged to apply the reduction in ICMS rates established by complementary law.
Despite the constitutional determination, the topic is far from a secure definition, especially for electricity distributors, who are usually responsible for collecting ICMS on energy supplied to consumers and, as such, are linked to regulatory criteria for tariff definition – which presupposes the transfer of tax benefits to the final consumer and, at the same time, to current state tax legislation, not yet formally adapted to the precepts of LC 194.
In practice, the context of uncertainty is as great as possible and quite challenging for distributors who need to decide whether to comply with LC 194 (and their respective obligation to pass on tax reductions to consumers) and reduce ICMS on electricity bills or, if continue to apply the rates provided for in current state tax legislation.
Until July 04, 2022, among the 27 units of the federation, only Rondônia opted to enact laws in a strict sense to adhere to the effects of LC 194 on all essential goods, including electrical energy.
Rio de Janeiro, Minas Gerais, Santa Catarina, Espírito Santo and the Federal District fully welcomed the reduction in the ICMS ceiling, but, to achieve this, they chose to issue normative acts within the Governor's jurisdiction, such as decrees or provisional measures.
The states of the Northeast, accompanied by Mato Grosso do Sul and Rio Grande do Sul, filed a Direct Action of Unconstitutionality before the Federal Supreme Court, questioning the reduction in ICMS promoted by LC 194. For this reason, Paraíba, Rio Grande do Norte and Alagoas published decrees fully accepting the reduction in the tax rate, but only during the validity of LC 194. Rio Grande do Sul reduced ICMS rates temporarily until July 31, 2022.
For now, São Paulo, Paraná, Goiás and the Governments of Ceará, Pernambuco, Sergipe, Amazonas and Pará have informally signaled via newsletters, interviews or social media their intention to accept the reduction of the ICMS ceiling. Meanwhile, the tax authorities of the other federative units remain without a formal statement on the reduction of the ICMS rate on electricity operations.
Even in the States that have already supported the reductions imposed by LC 194, important doubts remain about the delimitation of the application of the new rates, especially if we consider that LC 194 came into force on the date of its publication (on 23.06) and many of the The activities it achieves are billed based on monthly measurement criteria (not only electricity, but also natural gas and unmetered telecommunications services), which raises questions about the need or not for proportional application of the new rates.
The climate in the affected sectors is one of uncertainty, especially for taxpayers such as electricity distributors, who are simultaneously subject to tax, regulatory and consumer standards.
In addition to being attentive to the developments of the Direct Action of Unconstitutionality and the manifestations of the states on the subject, it is important that the electricity distributors and other taxpayers carefully evaluate the scope of the reductions already implemented by the states and study multidisciplinary legal strategies – whether administratively or judicially, to minimize risks not only from tax, but also from regulatory and Consumer Law points of view.
*João Paulo is the partner responsible for the Indirect Taxes and Customs Law area at Lefosse
*Rafaela is a senior lawyer in the Indirect Taxes and Customs Law area at Lefosse
