By Manassés Lopes

For decades, Brazilian companies have dealt with a fragmented consumption tax system encompassing PIS, Cofins, IPI, ICMS, and ISS. Each tax had its own rules of application, distinct credit regimes, specific ancillary obligations, and a body of case law built almost always in isolation.

The result was known to any lawyer practicing business law. Economically similar operations received different tax treatments, credits were accumulated or refused, jurisdictional conflicts multiplied, and a significant portion of business decisions were made not for productive reasons, but to circumvent distortions in the system.

The tax reform replaces this arrangement with a value-added tax model divided between the federal government, states, and municipalities. The change reorganizes the incidence, crediting, collection, litigation, and the very way companies structure contracts, prices, and supply chains.

Understanding consumption taxation is therefore no longer a specialization restricted to tax lawyers. It has become necessary knowledge for any lawyer who advises companies.

Two taxes with common rules and one selective tax.

The new system is structured around three taxes.

The Contribution on Goods and Services (CBS) belongs to the Federal Government and replaces the PIS and Cofins taxes. The Tax on Goods and Services (IBS) is a shared responsibility between states, the Federal District, and municipalities and will gradually replace the ICMS and ISS taxes. The third type is the Selective Tax, a federal tax aimed at taxing goods and services that are harmful to health or the environment.

The IBS and CBS form what is known as the dual VAT. They are distinct taxes, with different holders and administrations, but built upon a largely common material discipline. They apply to transactions involving tangible and intangible goods, rights, and services, and share rules regarding incidence, tax base, non-cumulativeness, and crediting.

The choice of two taxes, instead of a single national VAT, stems from Brazil's federal structure. The Union preserves its competence through the CBS (Contribution on Goods and Services), while states and municipalities participate in the IBS (Integrated Sales Tax). This solution allowed the reform to be approved without eliminating the autonomy of the entities, but it preserved an institutional division that will have repercussions on tax collection and litigation.

The IPI (Tax on Industrialized Products) deserves a caveat. Although it is part of the set of taxes progressively replaced by the new model, it will not simply be eliminated in 2027. Its rates will be reduced to zero, except for products that are also manufactured in the Manaus Free Trade Zone, due to the preservation of the constitutional treatment granted to the region.

Taxation at destination

One of the most important changes is in where the tax revenue will be allocated.

In the previous model, a significant portion of taxation was linked to the origin of the transaction, especially in the case of ICMS (a Brazilian state sales tax). This characteristic encouraged states to grant tax incentives to attract industries, distribution centers, and business establishments.

The IBS and CBS follow the destination principle. The revenue should belong to the location where consumption occurs, and not to the entity where the good was produced or from where the merchandise originated.

This change reduces the usefulness of planning based solely on the formal location of operations. The installation of a distribution center in a particular state no longer produces, by itself, the same tax advantage built under the logic of tax competition.

For lawyers, territorial analysis takes on a new function. It will be necessary to correctly identify the location of the transaction and consumption, especially in contracts involving digital services, assignment of rights, interstate transactions, ongoing supplies, and transactions with multiple recipients.

The discussion about destination will likely be one of the main sources of controversy in the new system.

Non-cumulative, but not automatic.

The new model adopts a broader non-cumulative approach than the previous system.

As a rule, taxpayers may claim IBS and CBS credits related to the acquisition of goods and services used in their economic activity. The system seeks to eliminate the cascading effect and ensure that each company only pays taxation on the value it adds to the supply chain.

This does not mean, however, that all business spending will automatically generate tax credits.

Complementary Law No. 214/2025 establishes prohibitions, documentary requirements, and specific treatments for certain transactions. Acquisitions intended for personal use or consumption, for example, do not generate credits, except in cases expressly provided for.

Furthermore, the appropriation requires a valid electronic tax document and must be done separately for each tax. IBS credits cannot be offset against CBS debits, nor can CBS credits be used to settle IBS.

The system is broader, but it remains conditional. The difference lies in the fact that restrictions should be treated as legal exceptions, and not as a result of a physical credit logic or restrictive lists constructed by the tax administration.

Credit now also depends on payment.

Another relevant point is the timing of when the credit can be appropriated.

In the previous system, the issuance of the tax document held a central position in the establishment of the tax credit. In the new system, the logic is linked to the extinction of the tax debt corresponding to the previous transaction.

In practical terms, it is not enough for the supplier to issue the invoice. It is necessary that the IBS and CBS taxes applicable to the transaction are effectively extinguished by one of the methods provided for in the legislation, such as collection, offsetting, or segregation of the tax in the payment.

The change seeks to reduce fraud based on tax documents issued without corresponding payment. At the same time, it creates a closer relationship between the acquirer's credit standing and the transaction's cash flow.

For companies, this will require integration between the tax, financial, accounting, and legal departments. Credit control cannot be achieved solely by verifying received invoices. It will be necessary to monitor payments, withholdings, segregations, and the effective settlement of obligations.

According to the lawyer, the issue has repercussions on the drafting of contracts. Clauses regarding tax compliance, document issuance, liability for loss of credit, withholding of payments, and compensation for supplier failures tend to gain relevance.

Taxes that are separate and more transparent.

The IBS and CBS will be calculated separately, without their own values ​​being included in the tax base.

The logic differs from that adopted in parts of the current system, especially in the ICMS (Brazilian state sales tax), whose value is incorporated into the tax base itself. In the new model, the price of the transaction and the corresponding tax tend to appear more clearly and separately.

This transparency makes it easier to identify the nominal weight of taxation, but it does not, by itself, resolve the discussion about the effective tax burden.

A company may be subject to a high nominal tax rate and still bear a reduced effective tax burden due to appropriate credits. Another may have a favorable tax rate but accumulate tax residues because it has few credits or carries out tax-exempt operations.

Therefore, comparing only tax rates will be insufficient. The analysis should consider the cost structure, the company's position in the supply chain, the profile of its suppliers, and its ability to recover tax credits.

The reference tax rate has not yet been defined.

The combined tax rate for IBS and CBS is usually presented at around 26,5%, with estimates of approximately 8,8% for CBS and 17,7% for IBS.

These percentages are not definitive. The value of 26,5% was used as a reference in the studies and control mechanisms of the reform, but the effective rates will depend on the calculations of revenue neutrality, the reductions granted to certain sectors, and the decisions made by the competent entities.

Complementary Law No. 214/2025 provides for evaluation and review mechanisms if the estimated sum of the reference rates exceeds the established parameter. This does not mean, however, that there is already a single, definitively fixed national rate.

It is also necessary to distinguish between the nominal tax rate and the effective tax burden. In a non-cumulative system, the final cost will depend on the difference between the debits levied on outputs and the credits appropriated on inputs.

Labor-intensive sectors with few taxable inputs may bear a proportionally greater impact. Companies with long supply chains and a large volume of creditable acquisitions may face a different situation, even if subject to the same nominal tax rate.

Basic food basket and cashback

The reform seeks to address the regressive nature of consumption taxation in two ways.

The first is the application of a zero tax rate to products included in the National Basic Food Basket. The definition of the items is not left to the isolated choice of each state, but stems from national legislation.

The second is the personalized return of part of the IBS and CBS, known as cashback. This mechanism is primarily intended for low-income families registered in the Cadastro Único (Single Registry) and depends on the consumer's identification in the transactions.

Instead of indiscriminately reducing taxes for all buyers, including those with higher incomes, cashback seeks to return a portion of the tax directly to the families reached by the public policy.

Complementary Law No. 214/2025 provides for differentiated percentages and more favorable treatment for essential expenses, such as the supply of electricity, water, sewage, and gas. States and municipalities may also establish refund percentages higher than the legal minimums in relation to their share of the IBS (Tax on Goods and Services).

The effectiveness of the mechanism will depend on the quality of the records, the identification of the consumer, the integration of the systems, and the accuracy of the tax information.

split payment and the impact on cash flow

Split payment is one of the main operational innovations of the new system.

In this mechanism, the institution responsible for the financial settlement separates the amount corresponding to the IBS and CBS and sends it directly to the tax administration. The supplier receives only the net value of the transaction.

This measure reduces the risk of the company charging the customer the tax but failing to remit it to the public treasury. It also allows for the coordinated payment of the tax and the release of the credit.

For the tax authorities, the mechanism represents greater revenue security. For businesses, it signifies a significant change in financial availability.

In the previous model, the tax amount could remain temporarily in the cash register until the obligation's due date. With segregation, this availability ceases to exist in some operations.

The effect will be especially noticeable for companies with narrow margins, long payment terms, and a high need for working capital. The reform, in this respect, is not just about taxation. It alters the financial management of the business.

The implementation of split payment will be gradual, according to a schedule and technical criteria defined by the administrations of IBS and CBS. The law itself requires that the system be implemented in a coordinated manner, taking into account the operational feasibility of the different forms of payment.

A materially integrated and institutionally divided system

Although IBS and CBS share a large part of the substantive rules, their administration has not been fully unified.

CBS will remain under the jurisdiction of the Federal Revenue Service and will be judged within the federal administrative structure. IBS will be administered by the IBS Management Committee, with its own organization for inspection, collection, and administrative adjudication.

Complementary Law No. 227/2026 definitively established the Management Committee, regulated the administration and litigation of the IBS (Brazilian VAT), and set rules for the distribution of revenue among states and municipalities.

There are mechanisms for integration and harmonization, but two administrative structures remain.

This creates a clear risk. The same transaction can be analyzed under similar material standards and still receive different administrative interpretations in relation to the IBS and the CBS.

In this sense, disagreements may arise in defining the location of the transaction, in recognizing tax credits, in classifying different tax regimes, and in interpreting common concepts.

The promise of simplicity in the dual VAT system will depend, to a large extent, on the ability of the Federal Revenue Service, the Management Committee, and the adjudicating bodies to maintain coordinated understandings.

For lawyers, a new field of activity opens up. Professionals will need to simultaneously monitor federal acts, regulations from the Management Committee, consultation solutions, administrative precedents, and judicial decisions related to taxes that are structurally similar but institutionally separate.

The transition has already started

The implementation of the new system is happening gradually.

In 2026, IBS and CBS are subject to test rates of 0,1% and 0,9%, respectively. These amounts are offset against PIS and Cofins taxes, and the legislation waives collection for taxpayers who correctly fulfill the ancillary obligations foreseen for the period.

In 2027, PIS and Cofins will be phased out and CBS will be effectively levied. The Selective Tax will also come into effect, and IPI rates will be reduced to zero, except for the protection afforded to the Manaus Free Trade Zone.

In 2027 and 2028, the IBS will remain at a reduced rate of 0,1%. The effective replacement of ICMS and ISS begins in 2029.

Between 2029 and 2032, the IBS's share will gradually increase, while the ICMS and ISS rates will be reduced. In 2033, the new model will be fully implemented and the two old taxes will be eliminated.

During this period, companies will need to operate with both systems. It will be necessary to calculate old and new taxes, adapt tax documents, review contracts, and manage credits subject to different rules.

The transition should not be treated as a simple matter of technology or compliance. The decisions made during this period will affect prices, investments, suppliers, location of operations, and cash availability.

The new dispute begins before 2033.

It would be wrong to assume that litigation will only arise when the new system is fully implemented.

The first controversies may already appear during the testing phase, especially regarding ancillary obligations, the classification of operations, the completion of tax documents, and the adaptation of business systems.

Once the collection process is complete, the debate should focus on the appropriation of credits, the application of specific regulations, the definition of the destination of the funds, the responsibility of digital platforms, and the operationalization of split payments.

There will also be discussions regarding the reimbursement of balances to creditors. In export activities or those subject to a zero tax rate, the company can accumulate credits in a structural way. The effectiveness of non-cumulative taxation will depend not only on the formal recognition of these credits, but also on their recovery within an economically reasonable timeframe.

The new system promises to reduce some of the litigation generated by ICMS (State VAT), ISS (Municipal Service Tax), PIS (Social Integration Program Tax), and Cofins (Contribution to Social Security Financing). At the same time, it will create its own issues that do not yet have consolidated doctrine or stable case law.

Those who have been following the implementation from the beginning will be able to participate in formulating the initial theses.

The IDP postgraduate program in Tax Law

Mastering consumption taxation requires understanding the application of the IBS and CBS taxes, the credit system, destination-based taxation, split payments , differentiated regimes, dual litigation, and a transition that will only be completed in 2033.

Reading the legislation in isolation is not enough to organize all these dimensions.

The IDP's postgraduate program in Tax Law is structured for professionals who need to interpret and apply the new system with confidence. The program covers the constitutional foundations of taxation, the division of powers, specific taxes, consumption taxes, the administrative tax process, tax enforcement, and case law applied to concrete problems.

The faculty includes professionals with academic and institutional experience. Among them are Weder de Oliveira, PhD in Law and Minister of the Federal Court of Accounts; Miquerlam Cavalcante, PhD candidate in Law, Attorney for the National Treasury and advisor to a Minister of the Supreme Federal Court; and Clara Gomes Moreira, post-doctoral fellow in Law, lawyer and professor.

The classes are entirely online and live.

For private lawyers, understanding dual VAT will be essential for reviewing contracts, reorganizing business chains, projecting cash flows, and navigating new tax litigation.

For public lawyers, prosecutors, and civil servants, the challenge will be to manage and defend a system founded on new competencies, revenue-raising instruments, and decision-making structures.

Tax reform is already underway. The case law that will guide consumption taxation in the coming decades is still being built. Those who specialize during this phase will be able to participate in this construction, rather than only knowing its outcome after it has been consolidated.