By Rafael Pilch de Matos and Nataly Rebeca de Oliveira Ceschim

The implementation of Brazil’s Consumption Tax Reform is beginning to reproduce a familiar phenomenon: even before the new system has been fully implemented, some of its provisions are already the subject of controversy. One issue that has gained particular relevance in recent months concerns the possibility of including amounts corresponding to the Contribution on Goods and Services (CBS) and the Tax on Goods and Services (IBS) in the calculation base of the Tax on the Circulation of Goods and Services (ICMS), given that these taxes will coexist during the transition between the two tax systems.

The issue gained even greater significance after the 16th Public Treasury Court of São Paulo granted a preliminary injunction in favor of Privalia Brasil S.A., authorizing the company to calculate ICMS without including IBS and CBS in its tax base.

Considering that CBS will become effectively payable as of 2027, while IBS will initially be levied at a reduced rate, the controversy is both timely and relevant, particularly because the gradual reduction of ICMS will only begin in 2029, with its complete phaseout scheduled for 2033. In other words, during this transition period, the existing and new consumption tax systems will operate simultaneously, directly affecting companies’ day-to-day operations.

It is precisely during this period that the following question arises: can ICMS be levied on amounts payable as IBS and CBS?

1. The Origin of the Controversy

Complementary Law (LC) No. 214/2025 established a specific framework for IBS and CBS, moving away from the traditional tax-inclusive calculation method and introducing a system designed to promote transparency, neutrality, and reduced tax cascading. In this regard, Article 12 of the legislation provides that the tax bases for IBS and CBS must correspond to the transaction value, excluding the taxes themselves, as well as ICMS, ISS, PIS, and Cofins, pursuant to items I and V of paragraph 2 of the same provision and in accordance with constitutional requirements.

The controversy lies in the reverse situation, since the legislation does not equally and expressly establish that IBS and CBS must be excluded from the ICMS tax base. The provisions of the Kandir Law (LC No. 87/1996) remain unchanged, establishing that the ICMS tax base generally corresponds to the transaction value or the price of the service, pursuant to Article 13 of that legislation.

On the one hand, some states argue that, because IBS and CBS are effectively charged to purchasers, their amounts become part of the transaction value and, consequently, fall within the scope of ICMS taxation. Furthermore, state tax authorities maintain that there is no express legal authorization to exclude the new taxes from the ICMS tax base, unlike the exclusions expressly provided for IBS and CBS.

However, this first line of reasoning appears to lose strength in light of the full non-cumulative nature of the new taxes, at least in transactions involving purchasers who are entitled to tax credits. This is because the amount paid at the previous stage generates a full tax credit for the purchaser, neutralizing its economic impact on the subsequent transaction. In such circumstances, IBS and CBS do not represent an effective cost to the taxpayer or an additional amount that could form part of the transaction value, but rather a temporary financial outlay subsequently recoverable through tax credits.

Along these lines, taxpayers argue that the new taxes have characteristics substantially different from ICMS, since they are calculated on a tax-exclusive basis, separately disclosed in a transparent manner, and do not constitute the supplier’s own revenue. Furthermore, IBS and CBS may be segregated through mechanisms such as split payment, meaning they should not be treated as part of the value of the commercial transaction itself, since they are not definitively incorporated into the price borne by a purchaser entitled to tax credits.

The tax-exclusive nature of IBS and CBS is particularly relevant because it creates a substantial distinction from previously adjudicated disputes, such as the inclusion of ICMS in its own tax base or the inclusion of PIS and Cofins in the ICMS tax base. In those cases, the taxes form part of the price of the goods or services and, consequently, are included in the ICMS tax base.

Taxpayers also invoke the absence of an express legal provision, relying on the principle of tax legality. They argue that neither Constitutional Amendment (EC) No. 132/2023, LC No. 214/2025, nor LC No. 87/1996 contains a provision expressly requiring IBS and CBS to be included in the ICMS tax base. This argument gained further support with the enactment of Complementary Law No. 227/2026, which amended Article 13, paragraph 1, of LC No. 87/1996 to expressly establish that the Selective Tax (IS) forms part of the ICMS tax base, while remaining silent regarding IBS and CBS.

Accordingly, one possible interpretation is that the complementary legislator itself considers that taxes calculated on a tax-exclusive basis do not automatically form part of the transaction value for ICMS purposes, making an express amendment to the Kandir Law necessary to subject IS amounts to ICMS. This amendment also reinforces the conclusion that including other taxes in the ICMS tax base requires specific legal authorization, which does not currently exist with respect to IBS and CBS.

In this regard, it is worth recalling that the original wording of Proposed Constitutional Amendment (PEC) No. 45/2019 expressly provided that IBS and CBS would not form part of the ICMS and ISS tax bases. However, this provision was removed from the text that ultimately resulted in Constitutional Amendment No. 132/2023, without the matter being regulated by subsequent legislation.

Based on this fact, one interpretation is that the removal reflected a deliberate decision by the constitutional legislator to allow ICMS to be levied on the new taxes. Conversely, it is also argued that removing the provision does not amount to creating a new basis for taxation, particularly when the complementary legislator, upon revisiting the matter, expressly provided only for the inclusion of IS in the ICMS tax base.

The legal uncertainty arising from the absence of an express provision in EC No. 132/2023 and LC No. 214/2025 also prompted the introduction of Complementary Bill No. 16/2025, which seeks to prevent amounts corresponding to IBS and CBS from being included in the ICMS, ISS, and IPI tax bases. The very existence of this legislative proposal demonstrates that the issue remains far from settled and that the legislation currently in force does not provide an unequivocal solution to the controversy.

Furthermore, including IBS and CBS in the ICMS tax base produces effects that appear to contradict the transition framework established by Constitutional Amendment No. 132/2023. The constitutional model was designed to gradually replace the previous tax system with the new dual VAT system, progressively reducing ICMS and ISS rates as IBS and CBS are phased in. However, allowing ICMS to be levied on amounts corresponding to the new taxes would, in practice, preserve a portion of state tax revenue precisely on the economic base intended to be transferred to the new system. This would partially offset the effects of the gradual reductions scheduled during the transition period and increase the tax burden on transactions.

Against this background, the central issues to be decided by the Judiciary are whether IBS and CBS form part of the value of the transaction or service and whether express legal authorization is required for states to include these taxes in the ICMS tax base.

2. The Privalia Case and the First Favorable Preliminary Injunction – Exclusion of IBS and CBS from the ICMS Tax Base

The discussion gained particular significance with Writ of Mandamus No. 1138866-98.2026.8.26.0053, filed preventively by Privalia Brasil S.A. before the 16th Public Treasury Court of São Paulo. The petitioner, which operates in the retail sale of various products and is subject to ICMS in the state of São Paulo, seeks to prevent an increase in the tax base of this state tax, relying on the arguments outlined in the previous section.

In addition to those arguments, the legal position advanced by the company also relied, by analogy, on the reasoning developed by the Brazilian Federal Supreme Court (STF) in General Repercussion Theme 69, in which the Court established that ICMS does not form part of the PIS and Cofins tax bases. In that precedent, the Supreme Court considered it relevant that amounts collected as ICMS are not definitively incorporated into the taxpayer’s assets. Finally, the company invoked the principles underlying the Tax Reform itself, particularly neutrality, transparency, simplicity, and non-cumulativity, arguing that levying ICMS on IBS and CBS would recreate, precisely during the transition period, a complex and non-transparent form of taxation that the new system seeks to reduce.

When examining the request for preliminary relief, the court fully granted the urgent measure, recognizing the plausibility of the alleged violation of the principle of strict tax legality. The court emphasized that, in the amendment introduced by LC No. 227/2026, the legislator expressly chose to include IS in the ICMS tax base without establishing similar treatment for IBS and CBS.

The court also considered the tax-exclusive nature of IBS and CBS, the principles of neutrality and transparency, and the segregation of taxes through the payment system. Based on these considerations, it concluded, on a preliminary basis, that such taxes represent amounts destined for the respective taxing authorities rather than definitive commercial revenue of the company. The judge also recognized the urgency of the matter, particularly given the need for accounting planning, pricing decisions, and tax system configuration before 2027.

On October 27, 2026, the preliminary decision was fully upheld in a final judgment at the trial-court level, recognizing the taxpayer’s right to calculate and pay ICMS without including amounts corresponding to IBS and CBS in its tax base.

Based on the reasoning adopted, the judgment rejected the attempt to equate the controversy with the position established by the Brazilian Superior Court of Justice (STJ) regarding the inclusion of PIS and Cofins in the ICMS tax base. According to the judge, the precedent established under Theme 1,223 was developed within a different regulatory framework, involving taxes incorporated into a tax-inclusive calculation system, whereas IBS and CBS were designed under the Tax Reform as taxes calculated on a tax-exclusive basis.

Furthermore, the decision relied on the guidance established by the Federal Supreme Court under General Repercussion Theme 69, on the understanding that amounts corresponding to IBS and CBS do not constitute the taxpayer’s own revenue, but rather revenue belonging to the competent taxing authorities that merely passes temporarily through the taxpayer’s accounts.

Ultimately, the judge definitively granted the writ of mandamus, ensuring Privalia Brasil S.A. the right to pay ICMS without including IBS and CBS in its tax base throughout the period in which the taxes coexist. The judgment also recognized the company’s right to offset any ICMS amounts that may have been paid as a result of the improper inclusion of CBS and IBS in the tax base during the proceedings.

3. The Position Adopted by the States

The issue becomes even more significant because several state tax authorities have already adopted positions requiring CBS and IBS to be included in the ICMS tax base, considering them part of the transaction value for ICMS purposes on the grounds that these indirect taxes are economically passed on to purchasers.

Examples include the positions adopted by the state of São Paulo (Response to Tax Ruling Request No. 33,083/2026), the Federal District (SUREC Notice without number, published in the Official Gazette on March 2, 2026), Pernambuco (Tax Ruling Resolution No. 10/2026), and Minas Gerais (Taxpayer Consultation No. 020/2026).

In Paraná, through Tax Ruling No. 048/2026, the State Department of Finance concluded that IBS, CBS, and IS amounts must be included in the ICMS tax base, given the absence of a legal provision requiring their exclusion. The conclusion also relied on the reasoning adopted by the Superior Court of Justice in Repetitive Theme No. 1,223, according to which PIS and Cofins form part of the ICMS tax base in the absence of an express legal provision to the contrary.

As can be observed, although no definitive uniform interpretation has yet been established, the administrative positions examined above reveal a significant tendency among state tax authorities to defend the inclusion of IBS and CBS in the ICMS tax base during the transition period.

This scenario demonstrates that the controversy is not limited to isolated cases or specific interpretations adopted by individual tax authorities, but rather represents a dispute with potential implications for all Brazilian states.

4. An Opportunity Requiring Action Before 2027

Considering the factors outlined above, the debate over excluding IBS and CBS from the ICMS tax base presents characteristics commonly associated with major tax disputes in their early stages: significant economic impact, formally established opposing positions from tax authorities, and the absence, thus far, of consolidated case law addressing the new regulatory framework.

For taxpayers, this scenario represents an opportunity that should be assessed in advance, particularly by companies with substantial volumes of transactions subject to ICMS.

It is important to emphasize that the favorable decision issued in São Paulo produces effects only between the parties to the proceedings. Therefore, excluding IBS and CBS from the ICMS tax base without an individualized court decision may expose companies to tax assessments and restrictions affecting their tax compliance status, depending on the legislation of each state.

It should also be noted that unfavorable precedents for taxpayers exist within the São Paulo State Court of Justice (TJSP), further reinforcing the need to closely monitor developments in judicial interpretations.

In this context, the most prudent approach is to conduct a preventive assessment of each specific situation and, where the procedural requirements are met, seek appropriate judicial protection before the effective collection of the taxes begins.

As previously mentioned, the decision obtained by Privalia recognized that the approaching implementation of the new system in 2027 creates an immediate need for legal certainty regarding pricing, accounting planning, and the configuration of electronic tax document issuance systems, in addition to the future risk of tax assessments and restrictions on taxpayer registrations.

The relevance of this discussion was recently reinforced by another decision favorable to taxpayers, issued by the 2nd Public Treasury Court of Santos, which recognized, in a judgment on the merits, the right to exclude IBS and CBS from the ICMS tax base.

In that decision, the judge emphasized that levying the state tax on the new taxes contradicts the tax-exclusive calculation method adopted by the Tax Reform. The judge also stressed that any revenue impacts arising from the replacement of taxes should be addressed through constitutional compensation mechanisms rather than by increasing the tax burden on taxpayers.

Another aspect requiring attention concerns the financial consequences of the strategy adopted by taxpayers. Since ICMS is an indirect tax, any claim for the recovery of unduly paid amounts is subject to the limitations imposed by Article 166 of the Brazilian National Tax Code.

This provision allows a tax refund only upon proof that the taxpayer bore the corresponding financial burden or has been expressly authorized by the party who bore that burden.

In practical terms, this circumstance requires companies to carefully assess how and when to address the controversy in order to avoid jeopardizing the possibility of recovering amounts through potential judicial proceedings.

Against this background, potentially affected taxpayers are advised to map their transactions, estimate the financial impact, identify the position adopted by each state, configure their systems to accommodate both possible scenarios, and legally assess the advisability of pursuing preventive judicial measures.

The debate surrounding the inclusion of IBS and CBS in the ICMS tax base has moved beyond a purely academic controversy and now carries immediate practical significance.

Accordingly, the combination of (i) administrative positions supporting inclusion, (ii) judicial decisions recognizing the plausibility of taxpayers’ arguments, and (iii) the approaching commencement of effective collection of the new taxes demonstrates that this issue has the potential to become one of the principal tax disputes during the transition period of Brazil’s Tax Reform.

The Tax Law Practice Group at Marins Bertoldi Advogados will continue to closely monitor developments on this matter and remains available to assist in assessing the impacts of the controversy, defining preventive strategies, and pursuing appropriate judicial measures during the Tax Reform transition period.