Tax Dispute

Disputes on the Taxation on ICMS-VAT-Tax rate (DIFAL) in Brazil.

Year 2022 in Brazil began with a challenging tax dispute. The Supplementary Act No. 32/2021, has been conceived to put an end to years of legal controversy over the collection of the tax rate (DIFAL in ICMS-VAT-Tax) in interstate operations that destine goods to final consumers who are not taxpayers, giving rise to a hasty controversy.

The tax rate difference has been levied since 2015, but in 2021 STF (Brazilian Federal Supreme Court) decided that an Additional Act had to be enacted to regulate it, a decision that came into force in 2022.

The Supplementary Act 190, established to regulate DIFAL, was sanctioned only on January 4th, 2022, and expressly stated in the text that it would become effective in 90 days.

The problem is that since the Supplementary Act 190 was only sanctioned in 2022. The tax litigation is precisely on that point: it should be necessary to respect the principle of Tax Anteriority, provided for in the Brazilian Constitution. Therefore, the referred Additional Act could only take effect in the fiscal year following the date it was enacted, that is, in 2023. The Constitution of the Federative Republic of Brazil, in its art. 150, III, “b”, establishes that: It is forbidden to levy taxes in the same financial year in which the law that established or increased them was enacted.

In other words, the 90-day deadline set forth in the text would only be correct if the sanction had occurred in 2021.

What is DIFAL?

This discussion started in 2015, when DIFAL began to be levied after the approval of Constitutional Amendment (EC) 87/15. The text regulated the division of ICMS (State VAT on Circulation of Goods and Services) between state of origin and state of destination.

Before this amendment, when a consumer from a specific state purchased goods over the Internet from another state, the ICMS tax was entirely levied by the state of origin of the selling establishment. The purchase would take place in one state, but the ICMS tax would be levied by another.

With the new rule established by the Constitutional Amendment (EC) 87/15, an apportionment was created among the states for all interstate operations, the so-called DIFAL, or tax rate difference.

The matter was defined by CONFAZ (Brazilian Federal Inter-State Finance Policy Council) Agreement 93/15, and since then the Brazilian states have divided the ICMS.


Big retailers should benefit from this tax discussion. States, on the other hand, will face financial problems, since the estimated losses are in the range of R$ 10 billion (ca. USD 2 billion) in a year.