Law

PIS and COFINS tax credit calculations

By Fernando Retzler Martins, WFaria Advogados

It is not new to anyone the many gray areas of the Brazilian tax legislation. Two of the taxes whose legislation allows for different interpretations are PIS and COFINS, indirect taxes levied on gross revenue and, in most cases, subject to a non-cumulative system that allows the appropriation of credits on inputs applied in the production of goods and provision of services.

PIS and COFINS legislation was enacted many years ago, leaving room for different interpretations regarding the definition of credits to be discounted when assessing the taxes. Pursuant to this legislation, companies may deduct credits calculated on inputs applied on the provision of services and on the manufacture of goods intended for sale. It occurs that our legislation has not clearly defined which inputs may be considered in the calculation of such credits.

As a result, the Brazilian Federal Revenue Service (RFB) issued some Normative Instructions defining, in a very restrictive and conservative way, which inputs are likely to generate credits: raw material, packaging material and, intermediate products and other goods that suffer transformation during the process and are not included among the fixed assets of the company. For service providers, inputs are the goods applied or consumed in the provision of services.

Because of this very restrictive interpretation adopted by the RFB, taxpayers began to question the concept of input for the purposes of PIS and COFINS credits discount in the administrative and judicial courts.

In the administrative courts, prevailing understanding was that credits could generally be appropriated on inputs considered as essential to the production or provision of services, when directly or indirectly applied on the process. More recently, the administrative courts understood that such inputs must be directly related to the production or provision of services. The judicial courts have been pacifying the broader understanding that inputs that generate PIS and COFINS credits are generally those essential to the activity of the company.

Therefore, both in the judicial and administrative courts, the concept of input for credit calculation of PIS and COFINS is not restricted to raw materials, intermediary products and packaging material, but all essential elements must be considered, i.e. those without which the production or manufacture of goods or provision of services would not be viable.

Considering these different interpretations, taxpayers who wish to calculate PIS and COFINS credits on inputs that are not clearly accepted by the RFB shall discuss such possibility with their legal advisors, analyze the risks and, in certain cases, initiate judicial proceedings to preserve their right and avoid future tax assessments.


Fernando Retzler Martins

Fernando Retzler Martins

WFaria Advogados, Sao Paulo, Brazil
T: +55 11 3018 7878
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: www.wfaria.com.br

Fernando Retzler Martins is a Tax Partner at WFaria Advogados, a full service law firm in Sao Paulo, Brazil, and provides tax advisory on direct and indirect taxes. Fernando is a certified tax lawyer and certified public accountant in Brazil, a former Partner with Big Four audit firms and a former head of a Brazilian Tax Desk in Germany. Fernando is a Trust and Estate Practitioner (TEP), member of the Brazilian Institute of Tax Law, German-Brazil Lawyers Association and the Tax Commission of the Brazilian Bar Association. He is an international conferencist and has several articles published.


Published: September 2017 l Photo: filipefrazao - Fotolia.com

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