TRF3 – PIS and COFINS – concept of input –expenses with health insurance, life insurance, staple food basket, restaurant, transport vouchers, Christmas basket, infirmary services and medical and dental care – elements inherent to the operation of the company – production costs

The Third Panel of the Federal Regional Court of the 3rd Region (TRF3), in the trial of Appeal no. 0026598-69.2012.4.01.0000/DF, found unanimously that expenses incurred with health insurance, life insurance, staple food basket, restaurant, transport vouchers, Christmas basket, infirmary services and medical and dental care cannot be considered as input, for the credit purposes of the PIS and COFINS levied on their acquisition, since they are not added to the product or service nor are they incorporated thereto, meaning they are elements inherent to the operation of the company (production cost/labor).

The Panel found that Laws no. 10,637/2002, 10,833/2003, and 10,865/2004, together with Constitution Amendment  (EC) no.42/03, in fact allowed the non-cumulativeness to the PIS and COFINS contributions, however, although the taxpayer defends that the mentioned expenses represent inputs, as they are, albeit indirectly, encompassed in the corporate activity, the Third Panel concludes that these expenses would bear no relation with the taxpayer’s end activity, a necessary requirement for credit, taking nto account that they are, in fact, expenses inherent to the company’s operation, and can be seen as production cost.

In this sense, according to the Third Panel of the TRF3, Laws no. 10,637/02 and 10.833/03 brought restrictive credit events, meaning the extension of the concept of inputs is not allowed, and the interpretation of the term is to be made as to the expenses that effectively relate to the company’s end activity  (analysis on the nature and essence of the expense, as a component of the end goods or service of the performance of the business purpose).

One of the most heated controversies  among taxpayers and the Federal Revenue of Brazil is still the one surrounding the concept of inputs for purposes of ascertainment of non-cumulative PIS/COFINS credits, and it should be pointed out that the  Administrative Council of Tax Appeals (a Ministry Treasury agency) has rendered several decisions on the matter, giving a more extended interpretation than that of the Federal Revenue, in order for the credits to comprise not only the inputs that are added to the end product, but also those relating to the production of revenues subject to such Contributions.