Tax & Accounting Blog

Brazil Increases PIS and COFINS on Imports

Blog, Indirect Tax February 3, 2015

On Jan 30, 2015, the Brazilian federal government published Medida Provisória (provisional measure) 668/2015, which increases the rates of PIS (Programa de Integração Social) and COFINS (Contribuição para o Financiamento da Seguridade Social) on the importation of goods. The measure includes increases on both the standard rate and the schedule of product-based reduced rates for goods, while the rates on the importation of services will remain the same. These changes will enter into effect on May 01, 2015, and it is expected that the national congress will enact corresponding law to make the changes permanent.

This measure was expected following the announcement made by the Minister of Finance, Joaquim Levy, on Jan 19, 2015. During that statement, he explained that the government’s motives for increasing these taxes was in reaction to a Supreme Court ruling made the previous year. That decision, Recurso Extraordinário 559.937, ruled that Article 149 of the Brazilian Constitution prohibits charging of PIS and COFINS on imports using a taxable basis that includes the PIS and COFINS tax amounts themselves, as well as ICMS, the state level VAT in Brazil. After that ruling, PIS and COFINS taxes are calculated over the gross amount of the customs value, which includes no taxes.

The finance minister observed in his January announcement that this Supreme Court ruling leads to less PIS and COFINS being charged on imports than are charged on domestic products. Because the common practice is to calculate Brazilian VAT over the final price of the transaction, not the gross before taxes, domestic sales were left at a disadvantage. The increased rate on imports is intended to bring those transactions in line with the effective rates charged elsewhere.