Constitutional Amendment No. 87/2015, published on 16 April 2015, implied relevant changes in the collection of ICMS (Tax levied upon Sales of Goods and Provision of Intermunicipal, Interstate and Communication Services) levied upon interstate sales transactions destined to end customers not qualified as ICMS taxpayers – usually, those performed through Internet (ecommerce), by phone or other forms without any physical contact.

Currently, the ICMS levied upon such transactions must be fully collected in favor of the State where the remitter/seller is located (State of Origin) considering the internal rate applicable in such State. Such scenario has increased the so-called ICMS "Tax War" between the States, due to the fact that the amount of ICMS collected upon the transactions performed virtually is totally concentrated in the more developed States where the head offices of the e-commerce companies and distribution centers of major wholesalers and retailers are located and, as a consequence, the other States where the end consumers are domiciled do not receive any ICMS revenue derived from these transactions.

In this context, the Brazilian Government issued the Constitutional Amendment No. 87/2015 amending the wording of paragraph 2 of Article 155 of the Federal Constitution. According to the new constitutional wording, a portion of the ICMS revenues originated from these virtual transactions shall be attributed to the State where the acquirer is located (State of Destination).

The amount destined to the State of Destination shall be collected by the remitter/seller and will correspond to the difference between the internal rate at the State of Destination and the interstate rate. Under such new system, the remitter/seller must collect: (i) the amount corresponding to the interstate rate (12 percent, 7 percent or 4 percent) in favor of the State of Origin; and (ii) the amount corresponding to the difference between the interstate rate and the internal rate in the State of Destination in favor of the State of Destination.

Such new rule will be gradually applied from 2016 onwards, as follows:

  • in 2016, 40 percent of the amount referred on item (ii) above in favor of the State of Destination and 60 percent in favor of the State of Origin;
  • in 2017, 60 percent in favor of the State of Destination and 40 percent in favor of the State of Origin;
  • in 2018, 80 percent in favor of the State of Destination and 20 percent in favor of the State of Origin; and,
  • from 2019 onwards, 100 percent in favor of the State of Destination.

We note that the original wording of the amendment stated a 20 percent initial percentage in favor of the State of Destination to be applied in 2015 – when the rule was supposed to be effective. However, the approval was delayed and article 3 of the Constitutional Amendment is clear in limiting its initial term as the next year after the publication (2016); thus, any attempt from the States of Destiny of collecting the amount prior to 2016 is not compliant with the Federal Constitution.

In any event, it is recommendable to observe any change in the initial percentage to be collected in favor of the State of Destination, to the extent that the rule was desired to assure a 20 percent transfer in the first year and not 40 percent, as it will be applicable due to the delay on the Amendment’s approval.

As one may appreciate, in principle the change aforementioned does not imply increase on the overall ICMS tax burden. It corresponds to a different distribution of the ICMS revenue related to interstate sales destined to end customers not qualified as ICMS taxpayers. The only taxpayers that might experience an increase of the ICMS burden are the ones that currently enjoy ICMS tax benefits in interstate sales under the rules of deferral or accrual of deemed credits.

Therefore, Constitutional Amendment No. 87/2015 is another attempt of the Brazilian Government to reduce the ICMS "Tax War" by means of a better distribution of the ICMS revenue collected upon interstate transactions performed under the e-commerce context with end consumers that are not ICMS taxpayers.

Below we reproduce a chart with an example on the implications provoked by the Constitutional Amendment No. 87/2015:

Click here to view table.