Brazil's supreme court stops e-commerce tax changes for micro retailers

The Brazilian Supreme Court has halted the application of new rules for taxation of online sales applying to micro and small retailers.

The new tax framework had been approved by the national finance policy council, Confaz, which also includes state treasury departments, and changed how revenues collected under the Brazilian state value-added tax (ICMS) on interstate e-commerce would be split between the states, local media reported.

The idea with the new rules was to gradually start dividing the ICMS revenue between the state of destination of the good purchased and the state where the online store is established.

Prior to these new terms, all ICMS levied on e-commerce remained in the state of the retailer, thus benefitting the more industrialized states in the country, such as São Paulo.

However, the changes also generated additional red tape, as retailers had to fill out two different forms to pay the ICMS rather than just one, and in the case of micro and small companies the changes were simply unconstitutional.

That was the understanding of supreme court judge Dias Toffoli, who abided by an injunction filed against the changes by various industry entities, including the Brazilian association of lawyers (OAB) and the national commerce association (CNC).

They argued that, under the constitution, micro and small companies registered in the simplified national tax regime must have a simplified and unified tax system. Having to fill out additional forms and pay ICMS in two different states would, therefore, be against the law.

Different lawyers and experts consulted by BNamericas previously had already warned that the new measures would be unconstitutional in the case of micro and small firms.

However, the decision by the supreme court judge is not yet final since it has only been suspended until the matter is assessed by the entire court.

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