New Controversies Over ICMS On Interstate Transactions

On a commendable effort to regulate the allocation of State VAT (ICMS) revenue on interstate transactions to end consumers, the National Congress approved, in late 2021, Bill 32/2021. However, the bill was only sanctioned by the President as Supplementary Law 190/2022 on January 2022, creating new controversies over the beginning of the effects of the new rules.

To contextualize the matter, in 2015, Constitutional Amendment 87/2015 was enacted establishing that, in all interstate transactions to end consumers, the ICMS should be split between the States of origin and destination, as follow: (a) to the State of origin, the ICMS calculated with the interstate rate (4%, 7% or 12%); and (b) to the State of destination, the ICMS calculated based on the difference between the interstate rates used in the transaction and the rate applicable to internal transactions in the State of destination (usually from 17% to 19%).