ICMS exemption on distributed generation in Rio de Janeiro

On July 1st, the state of Rio de Janeiro published the Law No. 8.922 / 2020, that granted ICMS exemption for distributed generation up to 5 MW, shared generation and ventures with multiple consumer units, just as the state of Minas Gerais did, through Law No. 22.549 / 2017.

According to art. 155, § 2º, XII, “g” of the Federal Constitution, it is the responsibility of the complementary law to regulate the way in which, through deliberation by the states and the Federal District, exemptions, incentives and tax benefits will be granted and revoked within the scope of the ICMS.

And it was through Complementary Law No. 24/75 that this topic remained disciplined, so that the aforementioned exemptions, incentives and tax benefits must be established through agreements signed and ratified by the states and the Federal District.

In relation to the exemption applicable to the distributed generation sector, this is regulated by ICMS Agreement 16, dated 22/4/2015, which authorizes all federated units to grant exemption on the amount of energy injected to participants in the electrical energy compensation system, for distributed micro and mini generation, as long as they are limited to 1 MW.

Thus, it is observed that the benefit granted by the state of Rio de Janeiro with the new standard, exceeds the scope of the ICMS Agreement 16/2015, and raises doubts as to whether or not for its validity it must be approved within the scope of CONFAZ (National Council of Finance Policy).

In 2017, two important regulations were published, which aim to avoid fiscal war between states, they are: Complementary Law No. 160/2017 and ICMS Agreement 190/2017.

In brief, the aforementioned standards brought a time limit for tax benefits to be granted, including their submission to analysis and transparency before CONFAZ, for their validity, among other provisions.

Furthermore, they establish that states and the Federal District can grant tax benefits (granted or extended by another federated unit), as long as their adhesion was made by March 31, 2020, or in case of missing this deadline, through of registration and authorization of CONFAZ, subject to a simple majority quorum.

Therefore, according to the current rule, the Law sanctioned in the state of Rio de Janeiro must still be submitted to CONFAZ.

However, it is important to inform that the tax benefit, now granted by Law 8.922/2020, reduces revenue only for Rio de Janeiro itself, with possible credit disallowances by other states not applicable here, precisely due to its practical nature, but still , with some sanctions applicable to the state that grants benefits that do not comply with the standards mentioned above.