In the latest virtual judgement, which ended on the 19th, the Federal Supreme Court (STF) confirmed the understanding of the Superior Court of Justice (STJ) on the possibility of the National Treasury filing rescission actions to annul final judgements related to the "thesis of the century". As well as having a direct impact on companies that had already been successful in excluding ICMS from the PIS and Cofins tax base, this decision reinforces the role of the Federal Government in reviewing retroactive amounts that benefited companies in previous decisions.

This ruling brings up discussions about legal certainty, reviews of final judgments and the rights of the Federal Government vis-à-vis taxpayers who have won favourable decisions. Here, we'll explore the impact of this decision and understand how TWS Consultoria can help your company with risk management and tax compliance to deal with the effects of the National Treasury's rescission actions.

Contextualising the "Thesis of the Century"

In March 2017, the Supreme Court ruled to exclude ICMS from the PIS and Cofins tax base (RE 574.706), guaranteeing taxpayers a major financial benefit by reducing the amount of taxes owed. The decision was widely celebrated by the business sector and represented a significant victory for companies challenging the inclusion of ICMS in the calculation of contributions.

In April 2021, however, the STF modulated the effects of this decision, stipulating that its validity would begin in March 2017 and would only benefit lawsuits filed before that date. This modulation brought uncertainty for companies that filed lawsuits between 2017 and the date of the modulation, as they now face the possibility of reviewing these judgements through rescission actions filed by the National Treasury.

Understanding Rescission Actions and the STF Decision

The STJ's decision in September 2023 was a milestone that authorised the National Treasury to file rescission actions to annul judgments favourable to taxpayers, on the grounds that such decisions were not in line with the modulation of effects in the ICMS/PIS-Cofins case. This interpretation has now been confirmed by the STF, which has validated the thesis that "a rescission action can be brought to adapt a judgement to the temporal modulation of the effects of the general repercussion thesis established in the judgement of RE 574.706 (Theme 69/RG)".

The STF's decision, which simultaneously analysed the constitutionality and merits of the extraordinary appeal (RE 1.489.562), sets a legal precedent for final judgments to be reviewed when there is modulation of effects in matters of general repercussion. This understanding directly affects companies that have obtained favourable rulings and reinforces the Federal Government's prerogative to review and potentially collect retroactive ICMS amounts that had been excluded from the PIS/Cofins tax base.

Impacts and Consequences for Companies

For companies that benefited from the 2017 decision and whose judgements were handed down between the date of the judgement and the modulation of effects, the recent STF decision represents a significant risk. The possibility of the National Treasury filing rescission actions could result in the reversal of the tax benefits obtained, bringing a significant financial impact, as well as additional litigation costs.

This context requires an in-depth analysis of tax liabilities and compliance strategies, especially for companies that rely on tight margins or have a large volume of operations subject to PIS and Cofins. To mitigate the risks, it is essential that companies rely on specialised advice and maintain a preventive stance in the face of possible tax reviews.

How TWS Consultancy Can Help Your Company

TWS Consultoria offers complete and personalised support for companies wishing to understand and adapt to the impacts of rescission actions and modulation of effects. Our team of experts in accounting and taxation is prepared to:

• Impact Analysis: Identify the financial and legal risks of the STF's decision on its operations and cash flows.
• Tax Compliance Strategy: Develop and implement tax compliance policies, ensuring that your company is in line with the latest court rulings.
• Review of Tax ProceduresReview tax practices and accounting processes to ensure that they comply with current regulations, avoiding the risk of future rescission actions.
• Legal Representation and Negotiation with the Tax AuthoritiesIf your company already has final decisions that could be the subject of rescission actions, our team of specialised lawyers can act in your defence, seeking to mitigate possible impacts and negotiations with the National Treasury.

Conclusion

The recent STF decision on the possibility of rescission actions under the "thesis of the century" is a watershed for the Brazilian tax environment. Although this decision brings more legal certainty for the tax authorities, it represents a new challenge for companies that had been successful in excluding ICMS from the PIS/Cofins calculation. TWS Consultoria stands by entrepreneurs to offer strategic guidance and specialised support, helping your company adapt to this scenario and protect itself from future risks.