ICMS Agreement 68/2022: find out its effects on GD

On May 13, 2022, the DOU (Official Gazette of the Union) published the ICMS Agreement no. 68/2022, extending the validity period of benefits and tax incentives that granted exemption from ICMS (Tax on Operations related to the Circulation of Goods and on the Provision of Services), and that affect the tax benefits granted for micro and minigeneration distributed in the States of Minas Gerais , Rio de Janeiro and Espírito Santo.

Unlike what was foreseen in the Agreement ICMS no. 16/2015, to the internal legislation of the mentioned States, by incorporating the provisions of the aforementioned Agreement, ended up expanding the scope of the exemption granted, but which would end at the end of this year.

To better understand the effects of ICMS Agreement no. 68/2022 in the exemptions for shared generation, projects with multiple consumer units and plants with a power greater than 1 MW, it is important to carry out a brief historical contextualization, covering everything from ICMS Agreement nº. 16/2015 to date, with the publication of ICMS Agreement no. 68/2022.

Historical context

As is known, one of the main regulatory instruments known by the DG (distributed generation) sector is the ICMS Agreement nº. 16/2015, which authorizes signatory States to grant exemption from ICMS on electrical energy injected into the distribution network and subsequently consumed by the same consumer unit, as long as it is limited to installed power less than or equal to 1 MW.

One of the pioneering States in the development of the DG sector, the State of Minas Gerais published State Law no. 22,549/2017, granting exemption from ICMS in a broader manner than that established in the Agreement above, covering photovoltaic solar source generating plants with a power greater than 1MW and equal to or less than 5MW, as well as including the modalities of shared generation and enterprises with multiple consumer units.

Still in mid-2017, aiming to correct a distortion known as the “ICMS tax war”, consisting of the granting of benefits and tax incentives for this tax without due approval from CONFAZ (National Council for Financial Policy), the Complementary Law was published no. 160/2017, determining the reinstitution of irregular tax benefits and establishing deadlines for validity according to their classification, having been subsequently incorporated by ICMS Agreement no. 190/2017.

After establishing the deadlines, the States of Rio de Janeiro and Espírito Santo through, respectively, State Laws No. 8,922/2020 and 11,253/2021, adhered to the tax benefit granted by the State of Minas Gerais, establishing the validity until 31 December 2022.

Finally, the deadlines that were previously established by Complementary Law nº. 160/2017 were extended to December 31, 2032 through Complementary Law no. 186/2021 and currently incorporated by ICMS Agreement no. 68/2022.

Technique used by the states of Rio De Janeiro and Espírito Santo

When establishing the validity periods of the tax benefits that were in force and that were granted without CONFAZ authorization, ICMS Agreement nº. 190/2017 provided for the possibility of another State adhering to the provisions granted by another entity of the federation, as long as they were from the same region, being able to be in force at most, within the same deadlines and under the same conditions as the adhered act.

Despite having been internalized through adherence to the tax benefit granted by the States of Minas Gerais, it is not enough for this State to extend its tax benefit so that the validity of the other States – Rio de Janeiro and Espírito Santo – can be extended, there is a need for each of these federation units to issue internal laws determining the extension until December 31, 2032, as provided by ICMS Agreement no. 68/2022.

It is worth remembering that the CONFAZ provisions are only authoritative, that is, they do not oblige States to incorporate the determinations into their internal legislation. Therefore, if it is in the interest of the fiscal policy of the mentioned States to maintain the benefits granted, it is essential to issue a law to extend the period of validity.

Provisions of ICMS Agreement No. 68/2022

In addition to unifying the validity periods of tax benefits granted for December 31, 2032, ICMS Agreement no. 68/2022 also provides for the reduction of these benefits from January 1, 2029, by 20% (twenty percent) per year, as provided for in Complementary Law no. 186/2021.

In other words, from January 1, 2029 until December 31, 2032, the ICMS exemption granted by the States of Minas Gerais, Rio de Janeiro and Espírito Santo, if extended, will be reduced by 20% (twenty percent) per year, becoming partial exemptions from that date, as seen in the table below:

Therefore, with the publication of Complementary Law no. 186/2021 and now with ICMS Agreement no. 68/2022, the exemptions granted by some States that until then would end at the end of this year, will probably be extended until December 31, 2032, and the sector should pay attention now to the forecast reduction of the exemption from 2029, taking into account given the relevance of taxes in the percentage of return on investments in DG projects.