Originally published in the June 20 edition of World Tax Daily (Copyrights Tax Analysts – www.taxanalysts.com)
São Paulo’s official gazette on June 4 published state Decree 53,051/2008 granting significant state VAT (ICMS) incentives to the automotive industry, which consists almost entirely of multinational companies.
The decree creates the Incentive Program for Investments by Automotive Producer (Programa de Incentivo ao Investimento pelo Fabricante de Veículo Automotor, or ProVeículo), which allows automakers to use ICMS credits to pay for investments in the modernization and enlargement of existing plants, the construction of new plants, the development of new products, or the increase of business in the country.
Under the program, automakers can virtually have their ICMS credits turned into cash, as those credits can be used to pay suppliers. ICMS credits may be used to:
• pay for assets and goods, including electricity, to be used in the relevant investment project;
• pay ICMS due on imports of assets that will be incorporated into the eligible project as long as those imports are cleared from customs within the state; and
• transfer to another ICMS taxpayer involved in the construction of the project.
But not all investments are eligible. The program focuses on midsize to large investments that total BRL 30 million or more. ICMS credits booked until November 30, 2010, will be eligible under the program, which has a filing deadline of December 31, 2010.
Among other requirements to apply for ProVeículo:
• accumulated ICMS credits by the automaker must total BRL 5 million or more;
• execution of the investment must follow the original terms of the project and the schedule for use of ICMS credits approved by the state Treasury Department;
• assets purchased with ICMS credits must be kept as fixed assets of a São Paulo business unit belonging to the taxpayer for at least 48 months after the project is concluded;
• at least 50 percent of goods and assets under the incentive program must be purchased from São Paulo suppliers; and
• the taxpayer must apply for state employment programs to hire young people from state public schools as employees.
São Paulo authorities estimate that the auto industry may use BRL 6.8 billion in ICMS credits for the next three years, based on investment estimates. For purposes of the program, automakers include not only manufacturers of vehicles, buses, and trucks, but also manufacturers of certain agribusiness equipment.
In 2007, automakers employed more than 120,000 employees in the state, according to local authorities. The automotive sector is among those benefiting most from Brazil’s growth in recent years, with constant record sales.
David Roberto R. Soares da Silva