Supplementary Law No. 190, of January 4th, 2022, amended the provisions of the Kandir Law (LC 87/1996), which deals with the levying of the tax on transactions related to the circulation of goods and on interstate and intercity transport as well as communication services (ICMS), notably regarding the distribution of the tax collection among the states involved in the operations and services, considering the origin and destination. This taxation system is known as the ICMS' tax rate differential, or DIFAL.

The strategy of taxing non-ICMS taxpayers and passing the revenue on to the state of the final recipient of the goods is not new and was already included in ICMS agreements. Prior to Constitutional Amendment 87/15, the tax levied on these transactions and service provisions was due entirely to the state of origin and is now divided between the two active subjects, with the state of origin paying the ICMS calculated based on the interstate tax rate and the state of destination the differential between the interstate tax rate and its internal tax rate.

However, the STF decided that despite EC 87/15 having created a new legal-tax relationship between the sender of the good or service (taxpayer) and the state of destination in transactions with goods and services intended for final consumers that are not ICMS taxpayers ("ICMS Sharing"), the agreements could not overcome the lack of a supplementary law providing on the tax liability, taxpayers, tax basis/rates, and ICMS credits in interstate transactions or installments with final consumers that are not ICMS taxpayers

Nevertheless, several states of the federation started to enact internal legislations in line with the conventions, which were later declared invalid by the STF.

In view of this new legal configuration, after the advent of LC 190/2022, the questions that arise refer to the need to readjust the internal legislations of the states and, especially, when the provisions of LC 190/2022 will enter into force, given that it was sanctioned and published already in 2022. Art. 3 of the LC defines the production and effects based on item "c", of item III, from Art. 150 of the Federal Constitution, that is, the nonagesimal priority. On the other hand, line "c" refers to line "b", which provides for the need to observe the principle of priority of the fiscal year for the cases of new taxes or tax increases.

In the case in question, with regard to the provisions that only amended the division of revenues, without, however, establishing or increasing taxes, they would be in force 90 days after published; whereas for the provisions increasing taxes, the priority of the fiscal year should also be observed, therefore, only being in force as of 2023, since the legislation was published in 2022.

Also, in terms of operationalization, LC 190/2022 provides for the creation of a specific portal to facilitate the issuance of payment slips with information about the specific operation – applicable legislation, tax rates, tax benefits, and accessory obligations. The

Conclusion

Despite the good intention of the legislators in trying to definitively discipline the DIFAL, the fact is that LC 190/2022, by being sanctioned only in 2022, ended up creating a relevant legal doubt, which will probably only be settled by the higher courts, once again.  On the other hand, the hypothesis that the states and the Federal District will not collect the DIFAL for the entire year 2022 can lead to a significant loss of revenue and non-compliance with fiscal targets and budget by these federal entities.