Brazilian oil and fuel operators are engaged in legal tax battles associated to exploration and manufacturing (E&P) actions, a few of which is able to drag on for years, a neighborhood knowledgeable advised BNamericas.
One of the principle discussions includes the funds balancing fund (FOT) of Rio de Janeiro state – the nation’s largest hydrocarbons producer – which retains 10% of the sources firms acquire from a tax break.
The companies query the legality and constitutionality of this technique and declare contributions shouldn’t be calculated based mostly on federal particular oil and fuel E&P tax incentive regime Repetro-Sped.
The FOT was created to switch fiscal balancing fund FEEF. Contributions are based mostly on ICMS gross sales and companies tax advantages granted by Rio de Janeiro, amongst them the ICMS tax base exemption and discount advantages for E&P operations.
On Tuesday, Prio (previously PetroRio) introduced the state’s courtroom of justice (TJRJ) upheld a ruling in its favor, excluding the FOT in operations involving imports backed by Repetro-Sped.
The determination interprets into financial savings of just about 80mn reais (US$16.4mn) for the corporate, nevertheless it was an remoted case, as most oil and fuel companies centered on the fund’s alleged unconstitutionality and have didn’t halt their contributions, the corporate mentioned in an announcement.
Prio centered on the ICMS profit, which is extra related to its operations, and located a legal loophole which enabled it to argue that tax advantages granted beneath a sure time period and onerous situation can’t be suppressed or diminished, respecting the precept of legal certainty.
“The cases in general are still at a preliminary stage, but are likely to be influenced by the STF [federal supreme court] decision on the FEEF case, which is similar. The trial is ongoing and was interrupted by a request for examination,” Tiago Severini, a companion at regulation agency Vieira Rezende, advised BNamericas.
In latest years, oil and fuel operators had been profitable in key legal tax battles, comparable to circumstances involving the legislative decree to cancel Repetro in Rio de Janeiro, in addition to the inspection charge created by the state and the ICMS profit on nicely extraction, which had been reinstated.
But there are a number of different discussions underway for particular segments.
“Perhaps the main discussion still pending besides the FOT, and with an unpredictable outcome, is the discussion about the constitutionality of the condition that was included by Brazilian states as a requirement for companies to join the Repetro-Sped and Repetro-industrialization at state level,” Severini mentioned.
According to him, the states made the businesses’ adhesion to the regime conditional on their withdrawal from ICMS fits on imports with out switch of possession, on which the supreme courtroom already dominated in favor of the businesses.
“In other words, the states are demanding that companies give up an already recognized right, so that they can benefit from the Repetro and Repetro-industrialization regimes going forward,” Severini mentioned.
The dialogue is way from over, “and the impact for companies is enormous,” he added.
Spotlight: Brazil’s legal O&G tax battles & More Latest News Update
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