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The STF Decided That ICMS Does Not Apply to Oil Extraction. The Court Unanimously Rejected Alerj’s Request to Authorize Taxation of the Activity. Understand the Arguments and Impacts of the Decision.
The Federal Supreme Court (STF) has unanimously ruled that ICMS does not apply to oil extraction, as reported this Sunday, the 28th. The ruling took place in a virtual session and concluded the case filed by the Legislative Assembly of Rio de Janeiro (Alerj), which sought authorization to tax the activity.
With this decision, the ministers reinforced that taxation of the sector is already clearly defined in the Federal Constitution, and it is not up to the Judiciary to change rules that stem from the original constituent power.
What Motivated Alerj’s Action
The State of Rio de Janeiro is responsible for approximately 70% of the national oil production. However, according to the constitutional rule, it cannot charge ICMS on extraction or on interstate operations involving derived fuels.
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In its action, Alerj argued that this limitation disproportionately affects state finances, constituting a violation of the federal pact. The request included a constitutional interpretation and a declaration of partial unconstitutionality of related provisions.
Two points were questioned in Article 155 of the Constitution:
- The ICMS immunity on interstate operations with oil and its derivatives.
- The rule established by Constitutional Amendment 33/2001, which directed the collection of the tax to the destination state.
Understanding of the Ministers
The rapporteur of the case, Minister Nunes Marques, rejected Alerj’s request. He emphasized that original constitutional norms cannot be subject to constitutional control, as this would mean the STF is reviewing its own constituent power.
The minister recalled important precedents, such as ADIn 815, in which the court established that there is no hierarchy among original constitutional norms. Furthermore, he cited the decision taken in ADIn 5.481, which had already established that there is no incidence of ICMS on oil extraction, as it does not involve a commercial operation that entails the transfer of ownership.
The Issue of Reciprocal Immunity
Another point raised by Alerj was the alleged violation of reciprocal tax immunity. For the state deputies, Constitutional Amendment 33/2001 would have violated federal balance by transferring jurisdiction to another entity.
The rapporteur, however, dismissed this thesis. According to him, the norm merely defined who would be the active subject of ICMS on lubricants and petroleum-derived fuels. This, in turn, does not imply direct taxation of the property, income, or services of another federative entity.
“The contested provision only defines the active subject of the ICMS due on transactions involving lubricants and petroleum-derived fuels, which must be taxed only once. This definition of tax authority is not confused with taxation on property, income, or services. Therefore, there is no direct taxation of the State of Rio de Janeiro by another federative entity, making the claim of violation of reciprocal immunity unfounded,” stated Minister Nunes Marques.
The decision represents another setback for Rio de Janeiro in its attempt to expand its tax base on the oil sector. Although the state accounts for the majority of production in the country, it remains unable to directly charge ICMS on extraction.
In the STF’s assessment, any changes to the tax rules on oil must go through the National Congress and not through the judicial route. Thus, the understanding remains that the tax on derived fuels applies only once and benefits the destination state, preserving the federal logic established in the Constitution.
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