Summary author Paulo Victor Vieira da Rocha
Federal VAT (Imposto sobre produtos Industrializados, IPI) on industrial production has two possible taxable
events: the sale of any industrialized good by its producer (the input or final good) and the import of the same
good. After legislative changes in 2001, the Brazilian tax authorities took the position that there are two taxable
events for imported goods; the import of the good itself and its resale or distribution by the importer. The Brazilian
Superior Court of Justice – the highest court for federal law interpretation in Brazil – consolidated its decisions in
favour of this view.
Athletic is a company that produced and imported physiotherapy equipment and subsequently resold this
equipment. In that regard, the Brazilian tax authorities held the view that federal VAT (IPI) was due on the
production and importation, as well as the resale, of those goods.
Legal background and issue
However, Athletic argued against the assessment of the IPI on its resale of goods imported, reasoning that such a
tax can only be charged once on each product, either at the moment it is imported, if the good is produced abroad,
or at the moment it is sold, in the case where it is produced in Brazil.
Athletic argued that the Brazilian tax authorities’ interpretation resulted in double taxation and that such a claim
could only be grounded on the IPI Code, which is an executive decree in Brazil, not law from the parliament. Such
a decree was not in accordance with Federal Law 4.502/64 nor with the general rules for taxable events in the CTN
1966, which is complementary law in Brazil, a kind of national law that is superior to federal, state and local law.
The Brazilian Constitution assigns different taxable events for the three political levels (Federal Union, member
states and municipalities) and forbids juridical double taxation (except for cases authorized by the Constitution
itself). The three types of political entities have the power to tax, defining taxable bases, rates, tax liability, etc. It
is constitutionally settled that, in order to avoid conflict between tax powers and double taxation, there must be a
sort of complementary law, which is not federal, state or local, but national law. It also defines the borders of the taxable events assigned to each public law entity, ensuring that the tax legislation of any of these three levels are
compatible with those general concepts, limits and borders defined by this national law. For tax purposes, this is
the CTN 1966 (i.e. the National Tax Code). The limits for the purposes of the IPI are laid out in Arts. 46 to 51 of the CTN 1966, which define as possible taxable events either the sale of a domestic industrialized good by its producer or the import of a foreign good.
These articles of the CTN 1966 also define the producers of industrialized goods, the importers and other persons
that could be deemed as equivalent to them (for the practicability of tax collection and for tax avoidance purposes),
as persons possibly liable to tax. For the purposes of the case at hand, this is the framework within which federal
legislation is to be taken into account. Federal legislation is deemed the rule of law for levying this tax (since, in
Brazil, all aspects of the taxable event, tax assessment base and liability must be set by the parliament).
Subsequently, the Executive Power established the IPI Code, which is a consolidated text with all the legal acts
(by Parliament) concerning this tax and sets up administrative procedures for collection and assessment. The
controversial issue concerns the interpretation of such Executive Code (which is a Decree by the President) gives
to the IPI taxable events. According to the rules of such decree (as interpreted, by the Brazilian tax authorities,
since even there the wording is not one hundred per cent clear in that sense) the reasoning is as follows:
1) the taxpayers are both the industrial producers and the importers;
2) the taxable events are both importing and selling an industrialized good; and
3) notwithstanding that the producer only practices the sale after its own production, the importer practices both
acts, importing the good and selling it. Therefore, concerning the importer, there are two different taxable events.
However, taxpayers that import goods into Brazil argued that the IPI Code could only be interpreted according
to the federal and national Laws, which say, according to them, that the taxable events are alternative, and not
It follows from the above, according to the taxpayers, that national goods tax is levied on sale, while imported
goods are taxed at import itself. They also argued that tax was due to industrial activities and it was only charged
on import because of the destination principle of VAT (IPI) taxation. If the importers do not industrialize anything,
the tax is due only on import, not on the value added by them when reselling the same good imported. Accordingly,
the Brazilian tax authorities’ interpretation would lead to double taxation, since the importers would pay the IPI
twice and the domestic producers only once. This would also imply a breach of the principle of equality and would
discriminate against imported goods (which would violate the General Agreement for Tariffs and Trade (GATT
The Brazilian Superior Court of Justice, in its First Section (which encompasses the two chambers that judge tax
issues), decided that the Brazilian tax authorities’ interpretation of the legislation described above was correct.
Therefore, as regards imported goods, the IPI is to be levied both on the import and resale of the goods.
This judgment was the first time the Superior Court of Justice decided on the issue of double taxation for IPI
purposes with binding effect to all other lower Brazilian courts. The abstract of the judgment to guide lower courts
is: “imported goods are subject to a ‘new’ IPI levy when they leave the importer’s stock in a sale operation, even
though they were not subject to any industrial activity in Brazil”. According to the Superior Court of Justice, this
was the correct interpretation of the national and federal law. It also pointed out that there was no problem of
cumulative taxation of IPI, since the importers have a credit for the IPI paid on the import of the goods and set it
off against the IPI due on the subsequent sale. The Superior Court of Justice also explicitly stated that it did not
consider constitutional issues for such a decision. Since its jurisdiction is to interpret federal and national law, it
only defined the content of such laws. The Superior Court of Justice then explicitly defined as a premise that no act
of such legislation was ever declared unconstitutional by the Federal Supreme Court, which is the constitutional
It is reasonable to say that the wording of the IPI Code (executive decree) prescribes the taxation on both
operations for imported goods, as argued by the Brazilian tax authorities. However, arriving at such a conclusion
concerning the legal texts of federal and national law strays far from the structure and even historical approach
of this tax, especially because it was conceived to be a VAT on production and not on trade. This is very clear in
all legislative documents from when the legislation was first created. As the taxation of value added on trade was
already assigned to the Brazilian member states, the federal taxation of value added was restricted to production
phases. Even the title of the respective chapter in the National Tax Code indicates such a rationale. Import was
defined as a possible taxable event just because Brazil could not (for territorial issues) make industrial producers
abroad liable to tax. So instead of taxing the foreign producers, national law had to make the ones who buy from
them liable (the importers). In both cases, taxing the producers or taxing the importers, the taxable base would
continue to be the value added until the end of the production cycle, as the last taxable event of the chain is its sale
to the first trader of the chain, the importer or a gross dealer, in domestic cases.
Besides that, discrimination as prohibited by Art. III(2) of the GATT agreement is very clear. Some of the judges
of the Superior Court of Justice reasoned this way, but they were a minority. It is now up to the Supreme Federal
Court (the constitutional court in Brazil – Supremo Tribunal Federal, STF) to decide if such rules violate the
equality principle. A case concerning this issue was already admitted to that court in 2017 and is now a pending
case before it. However, as there are no specific criteria for the cases to be judged, the current position taken by
the Superior Court of Justice is the valid judicial understanding and must be followed, except for the very few
taxpayers who obtained a provisory injunction warranting them against it. Accordingly, since the beginning of
2017, imported goods in Brazil are subject to IPI more times than national goods.
Decision published in https://ww2.stj.jus.br/websecstj/cgi/revista/REJ.cgi/ITA?