Theme 843: Brazil’s Supreme Court keeps presumed ICMS credits out of PIS and Cofins

On October 7, 2026, Brazil’s Supreme Court (STF) ruled that presumed ICMS credits granted by the states cannot be included in the base of PIS and Cofins, the federal contributions levied on revenue. The decision is binding on all courts, and it lands at an unusual moment: PIS and Cofins will cease to exist on January 1, 2027. For foreign-owned subsidiaries that enjoy state tax incentives, this means a refund opportunity with a clear deadline and a few traps.

What the Supreme Court decided

The case is Extraordinary Appeal (RE) 835,818, which sets the binding precedent for Theme 843 under Brazil’s general repercussion system. By a 7–4 majority, the Court dismissed the Federal Government’s appeal and fixed the following thesis (our translation): “Including presumed ICMS credits in the calculation base of Cofins and of the contribution to PIS is incompatible with the Federal Constitution.” The dissenting justices were Alexandre de Moraes, Gilmar Mendes, Nunes Marques and Luiz Fux.

The majority’s reasoning, as reported by the Court, is that a presumed credit is a tax waiver granted by a state. It reduces the ICMS the company owes, but it is not new wealth or revenue, even if the accounting records it as income. Treating it as revenue would also let the Federal Government claw back, through its own contributions, part of an incentive that the Constitution allows the states to grant.

A presumed credit (crédito presumido) is one of the most common forms of state incentive in Brazil. Instead of cutting the rate, the state lets the company book an extra ICMS credit, often a percentage of its sales or of the tax due, which lowers the amount payable each month. These incentives are widespread in manufacturing, distribution and agribusiness, and they are often the reason a group chose one state over another for its Brazilian plant or distribution center.

Why the ruling matters more from 2024 onward

Until December 2023, the PIS and Cofins laws for companies under the non-cumulative method expressly excluded investment grants (subvenções para investimento) from the base, which covered many state incentives. Law 14,789/2023 repealed those exclusions with effect from January 1, 2024, and replaced the old income tax treatment with a new “investment grant tax credit” limited to companies taxed under the actual profits method (Lucro Real) and approved by the Federal Revenue Service (RFB).

In practice, many subsidiaries began adding presumed ICMS credits to their PIS and Cofins base in 2024, either by choice or because their advisers saw no safe alternative. Those are the companies with the most to gain from Theme 843. The thesis is about the constitutional concept of revenue, so it is not limited to a particular period or method: it also supports claims for earlier years still within the statute of limitations.

What the ruling does not settle

• Corporate income tax. Theme 843 covers PIS and Cofins only. Whether presumed ICMS credits can be excluded from IRPJ (corporate income tax) and CSLL (Social Contribution on Net Income), before and after Law 14,789/2023, is pending before the Superior Court of Justice (STJ) as Theme 1,416, with appeals on the subject suspended nationwide since March 2026. The STJ has excluded these credits from both taxes since 2017 (EREsp 1,517,492), but it has not yet ruled on the post-2024 regime.
• Other ICMS incentives. The thesis refers to presumed credits. Exemptions, reduced bases and rate cuts work differently and are not automatically covered.
• Temporal effects. The Court did not limit the effects of the decision in time. The Federal Government can still ask for that through motions for clarification once the judgment is published. There is precedent: in the 2017 ruling that excluded ICMS from the PIS and Cofins base (Theme 69), the Court later limited the effects to March 15, 2017, protecting only taxpayers that had already filed suit by then.

That last point is the main reason why waiting is risky. If the Court decides to protect only taxpayers that went to court before a certain date, companies that stayed on the sidelines may lose the refund for past years.

A short window: PIS and Cofins end in 2027

Under Constitutional Amendment 132/2023, PIS and Cofins are abolished from 2027, when the new federal CBS (Contribution on Goods and Services) is charged in full. The CBS falls on supplies of goods and services, not on total revenue, so the “is this revenue?” debate that fed Theme 843 should largely disappear. If you want a refresher on the transition, see our overview of Brazil’s tax reform for foreign headquarters.

Two consequences follow. First, the ruling’s forward-looking benefit is limited to the rest of 2026. Second, its real value is in the past: refunds of PIS and Cofins paid over the last five years, the limitation period set by the National Tax Code (article 168, I). Every month that passes, the oldest month drops out of reach.

ICMS incentives themselves also have an end date. The same amendment reduces ICMS rates to 90% of their current level in 2029 and down to 60% in 2032, before the tax is replaced by the IBS in 2033. Incentives granted for a fixed term and under conditions can be compensated by a federal fund between 2029 and 2032. Groups that chose a location because of a presumed credit should already be modeling what happens to their margin when it phases out.

What foreign-owned subsidiaries should do now

1. Quantify the exposure

Pull the presumed ICMS credits booked by each establishment and check whether they were included in the PIS and Cofins base, month by month. The figures are in the company’s own records and digital filings (EFD ICMS/IPI and EFD-Contribuições), so this is mostly a reconciliation exercise. The orders of magnitude can be significant. In a hypothetical example, a subsidiary under the non-cumulative method that books BRL 10 million a year in presumed credits pays 9.25% (1.65% PIS plus 7.6% Cofins) on that amount, or BRL 925,000 a year. Over 2024 to 2026 alone, that adds up to about BRL 2.8 million before interest at the Selic rate.

2. Decide how to recover it

Under Law 10,522/2002 (articles 19 and 19-A), the RFB’s auditors only stop assessing a matter decided by the Supreme Court once the Office of the Attorney General of the National Treasury (PGFN) issues its formal position. Until then, a company that simply stops including the credits, or files an administrative refund claim, may face a tax assessment. A company’s own lawsuit protects it against a possible limitation of effects and secures the right to recover, but credits recognized in court can only be offset after a final, non-appealable decision in that case (National Tax Code, article 170-A). The right path depends on the amounts, the years involved and the group’s appetite for litigation. It is a decision to make in the coming weeks, not in 2027.

3. Align the 2026 calculations

For the remaining months of 2026, define, together with your tax advisers, whether to keep including the credits and claim them back later, or to exclude them with the protection of a court order. Document the choice: it will be reviewed by the group’s auditors.

4. Explain it correctly to headquarters

A favorable Supreme Court thesis is not cash. Under IFRS (IAS 37), a contingent asset is only recognized when the inflow is virtually certain; until then, it is disclosed when probable. US GAAP (ASC 450-30) is stricter and generally waits until the gain is realized. The local team should give the group’s controllership a clear estimate, the expected timing and the open risks, mainly the modulation of effects and the income tax question still before the STJ.

5. Watch the next steps

Three things will shape the outcome: publication of the judgment and any motions for clarification in RE 835,818; the PGFN’s formal position under Law 10,522/2002; and the STJ’s ruling on Theme 1,416 for IRPJ and CSLL.

How Solidy can help

We map presumed ICMS credits by establishment, reconcile them with the PIS and Cofins filings, estimate the amount at stake and prepare the information that your lawyers and the group’s auditors need. Solidy already serves subsidiaries of multinational companies in Brazil. Talk to our consultants.