Brazil’s Supreme Court Confirms No ICMS Tax on Interstate Transfers Between a Company’s Own Branches

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Rule takes effect from 2024 and excludes retroactive application, preserving legal certainty and fiscal stability

In a unanimous decision under General Repercussion Topic 1367, Brazil’s Supreme Federal Court (STF) reaffirmed that ICMS (state value-added tax) does not apply to the transfer of goods between branches of the same legal entity, even when located in different states.

However, the Court emphasized that this rule only applies from fiscal year 2024 onward, unless the taxpayer had already initiated administrative or judicial proceedings before April 29, 2021.

The Legal Background: ICMS and Non-Taxable Internal Transfers

The STF had previously addressed the issue in RE 1.255.885 (Topic 1099), ruling that internal stock transfers do not constitute “economic circulation”, and therefore do not trigger a taxable event under ICMS legislation.

This principle was later confirmed in Constitutional Declaratory Action (ADC) 49, where the STF modulated the effects of its ruling to ensure legal certainty and fiscal balance, limiting the application of the new interpretation to 2024 and beyond.

In the case at hand — RE 1.490.708 — the State of São Paulo contested a local court ruling that applied the non-taxability principle retroactively, in violation of the time limitation established in ADC 49. The STF reaffirmed that ICMS may only be excluded from such transfers as of 2024, except for cases already in progress as of April 29, 2021.

Practical Impact for Businesses

This decision carries significant consequences for companies, especially those with operations and inventory movement across multiple states:

  • ✅ Until 2023: States may still collect ICMS on interstate branch transfers, unless the taxpayer challenged the charge in court or administratively before 29/04/2021;
  • ✅ From 2024 onward: No ICMS may be levied on transfers between establishments of the same legal entity, regardless of state.

Although the ruling provides clarity and consistency, it also raises operational and accounting challenges, given that some state tax authorities may still interpret and apply the rule differently, potentially leading to administrative disputes.

Balancing Legal Certainty and Fiscal Responsibility

By limiting the retroactive application of its decision, the STF aimed to balance two constitutional principles:

  • 🔹 Legal certainty: Protects taxpayers and state authorities from abrupt retroactive changes;
  • 🔹 Fiscal equilibrium: Allows states time to adjust to the revenue impacts of the new rule.

Justice Luís Roberto Barroso, the case’s rapporteur, noted that ignoring the modulation would undermine the STF’s authority and destabilize Brazil’s tax system, which relies heavily on ICMS revenues.

Final Thoughts: Clear Guidelines for 2024 and Beyond

The STF’s ruling clarifies that interstate transfers between branches of the same company are not taxable under ICMS, but only from 2024 onward. It also confirms that earlier disputes must follow the modulation cutoff date of April 29, 2021.

Companies with interstate operations should review their tax strategies and compliance practices to ensure alignment with the STF’s guidance — and seek legal counsel if necessary to resolve any ongoing or retroactive disputes.

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