ICMS is similar to the European VAT and the Canadian GST. However, unlike VAT and GST, ICMS does not apply to services other than those corresponding to the second and third heads of the Hydra. European translators pay VAT; Brazilian translators do not pay ICMS: we pay ISS, a local service tax of an entirely different nature. There is a lot of talk about replacing ICMS and its sister tax IPI with a purer form of VAT, to be known as IVA (Imposto sobre o Valor Agregado)but, so far, it is only talk. What is added value? ICMS and its predecessor, ICM, are value-added taxes (impostos sobre o valor agregado). This means that if you have to pay ICMS at all, the tax will be computed based on value you added to the taxed item, not on its total price. Very simply stated, this means the following: Companhia Polidora de Peas buys rough parts from Companhia de Peas Brutas for $9, polishes them and sells the polished parts for $12. Companhia Polidora de Peas has to pay ICMS on the $3 it added to the value of the parts ($12-$9), not on the total price ($12). In practice, computing added values is not always easy and thus the tax is treated as no-cumulativo (non-cumulative, non-cascading). Let me try to show how this works. A long story, perhaps. Mechanics of ICMS We should probably start with the sistemtica de apurao (mechanics). No, we cannot. We must begin with some preliminary information. There it goes: ICMS is a State tax and thus the regulamento known as RICMS (ICMS Regulations) differs from one State to the next. However, State regulations must comply with the Cdigo Tributrio Nacional (Brazilian Tax Code), abbreviated CTN and CTN, in turn, is subject to the restrictions set forth in the Constituio (Constitution). So the basics are the same nationwide. Companies subject to ICMS must ter inscrio estadual (be registered for ICMS, be registered as State taxpayers). The inscrio estadual (state registration number, state tax ID) must be shown in all notas fiscais (tax invoices) issued by companies whose operations are subject to ICMS. A nota fiscal is a very formal document and printers will only supply tax invoice orders if shown evidence that the buyer is a legitimate merchant registered for ICMS and authorized to order a new lot of them. Many companies have been authorized to print their own notas fiscais using their own computers for the task, or to issue cupons fiscais, or tickets fiscais, which are equivalent to notas fiscais. However, the fact is that you cannot just sit down at your computer and prepare a nota fiscal any old way you want. There are strict rules to be followed. Cupons, tickets and notas fiscais together are referred to as documentos fiscais, but we often talk about nota fiscal, even when a coupon or a ticket is meant. In theory, a documento fiscal is distinct from a fatura (invoice) or conta (bill). In practice, the three documents are usually combined into a single one. However, a documento fiscal, no matter what other uses are made of it, is a document issued for tax purposes and must contain information required by tax regulations. In theory, anyone carrying goods must be prepared to show the appropriate nota fiscal if so asked by a fiscal (tax inspector). In practice, you will see cars marked fiscalizao (tax inspectors) parked on streets and roads and tax inspectors ordering trucks to stop for inspection. They will ask for the notas fiscais, which they will check against the mercadorias (goods). What happens when the fornecedor (supplier) cannot issue a documento fiscal? There are two classic cases of suppliers who can not issue one of those documents. In one case, the supplier is a non-resident. For instance, if Companhia Polidora de Peas buys rough parts from a Thai company, it cannot expect its supplier to issue a valid Brazilian tax document. So, Companhia Polidora de Peas must issue a Documento Fiscal de Entrada, a kind of "reverse" tax invoice, issued by the buyer, not by the supplier. The same thing happens when a company dealing in second-hand computers buys a an old machine from a translator. Translators do not ordinarily sell merchandise (they provide services) and thus no tm inscrio estadual (are not registered for ICMS). Thus, they cannot issue a documento fiscal for the sale of merchandise, and the buyers must issue the document themselves. What data must be shown on a tax document? Tax documents may be further divided into two different types: those issued to the consumidor (consumer) and those issued to another contribuinte (taxable person, taxpayer). Notas para consumidor are very simple: name of fornecedor (supplier), valor da operao (transaction value, supply value) and a few other items, such as place and date. Documents for transactions between contribuintes (taxable persons) are more complicated. They must identify the buyer (including inscrio estadual) and also destacar o imposto (identify the amount of tax)that is, they must show the amount of ICMS paid on a separate line. You will see why this is important in a few minutes. If the operao (operation, transaction) is taxed at other than the maximum rate or benefits from some other kind of favor fiscal (relief) the document must also show fundamentao (specify law or regulation granting the relief) or the fisco (tax authorities) will reclamar o imposto (claim the tax) at the full rate. What are entradas and sadas An entrada is goods received. All entradas must be described in a documento fiscal. Once a company receives a documento fiscal corresponding to an entrada it must be lanado (entered) in the livro-registro de entradas (good received register, supplies received register, inputs register). A sada is goods supplied. All sadas must be described in a documento fiscal, and all of those must be entered in a livro registro de sadas (goods shipped register, supplies made register, outputs register). What is a crdito tributrio? Crdito tributrio (tax claim) is the Government's right to demand payment of the tax. A crdito tributrio is estabelecido (established) when the operao (transaction) is tributada (taxed). This requires a fato gerador or fato imponvel (taxable transaction). Brazilian law depends much on doutrina, which is the body of theoretical legal writing. And escritos doutrinrios are full of learned discussions about the differences between fato gerador, fato imponvel and hiptese de incidncia and your client will certainly explain the differences to you in detail. However, do not expect all of your clients to agree on what the differences are. There are also cases of no-incidncia (transactions that are not taxed, tax-free transactions). [The current vogue for using no plus an abstract (no-excluso, no-incidncia) is maddening, but I will have to deal with that in a future article, God allowing.] No-incidncia may be of three types: Imunidade (immunity), the cases in which the Constitution itself contains a provision freeing the operation from the tax. For instance, book sales are immune from taxation. Iseno (exemption), the cases in which a specific law (not the Constitution) frees the operation from taxation. No-incidncia pura e simples (transactions falling outside the scope of the law), the cases in which the law simply does not refer to the operation. Under certain cases, the Government will grant an anistia (amnesty), which does not require an explanation. Anistias together with hipteses de no incidncia make up excluses do crdito tributrio (cases where no claim for the tax arises). How is ICMS liability computed At stated periods Companhia Polidora must apurar (compute) its ICMS liability. This is a three-step process. First Companhia Polidora adds up the ICMS identified in all tax documents received from its suppliers. The total is referred to as crditos de ICMS (ICMS credits, ICMS inputs) and reflects ICMS paid by the Company's suppliers. Then, the Company adds up all the ICMS identified in all tax documents it issued. This is referred to as dbitos de ICMS (ICMS outputs, ICMS debits) and reflects gross ICMS owed by the Company. Finally, the Company deducts tax inputs from outputs, to arrive at the actual amount of ICMS owed, which is the crdito tributrio. The terminology may be a bit confusing, but the procedure is obvious. In other words, ICMS is called no-cumulativo (non-cumulative), because each taxpayer's ICMS bill is always computed by deducting ICMS paid by other taxpayers upstream. Seen from another standpoint, it is an imposto sobre o valor agregado (value-added tax) because in the end taxpayers only pay ICMS on the value they add to the product, although this is computed in an indirect manner. Additional information and the usual disclaimer I try to be original in my writings, but writing an original disclaimer for each article is really beyond my powers. However a disclaimer is required: I am neither lawyer nor accountant, but a translator and am contented with my station in life. So all this should be construed not as an explanation of how to handle ICMS, but as a terminological toolkit for translators perplexed with texts on ICMS. In fact, my articles always include a certain amount of generalization and lack of precision that would be unacceptable in the work of a lawyer or CPA. The terminology used is cribbed from Brazilian, international and U.K. sources. Most of all, I recommend: Victor Thuronyi, editor, Tax Law Design and Drafting, (Washington, D.C., International Monetary Fund, 1996). Only Volume I has been published so far. A work written in a very clear language on comparative tax law that should be translated into Portuguese and read by all Brazilian lawyers. That might convince them that it is possible to write a very technical text on tax matters without using grandiloquent, highfalutin' and sesquipedal language. CCH Editions Limited British Master Tax Guide. Several editions. A classic handbook and a mine of terminological information because it discusses VAT. MCA Fhrer and MRE Fhrer, Resumo de Direito Tributrio, (So Paulo, Malheiros). Several editions. A book written in plain language, which contains all the information a translator needs. In fact, the same authors have published six more booklets on different branches of law, all of them highly recommended for those who want a readable introduction. EMF Jardim, Dicionrio Jurdico Tributrio (So Paulo, Saraiva 1996). Copyright 1998 Translation Journal and the Author URL: http://accurapid.com/journal/09icms.htm |