Companies operating in the State of Rio de Janeiro may face immediate tax consequences concerning the state sales tax (ICMS) charged on “upstream” transactions involving oil and gas extraction in light of two legislative amendments directly affecting the oil and gas industry.
The ICMS—Imposto sobre Circulação de Mercadorias e Serviços—is a state-level sales tax imposed on the physical movement of merchandise.
First, there is a new ICMS charge (for a total rate of 20%) levied on the transport of oil from the extraction site to the measuring stations. The new ICMS applies to the greater of: (1) the minimum price of oil set by the ANP (the oil and gas state agency); or (2) the weighted average sales prices charged by the operator, under normal market conditions.
As an oil-producing state, the Rio de Janeiro government can introduce ICMS taxation over products produced or shipped in its territory, regardless of constitutional provisions against such measures (e.g., constitutional provisions provide that ICMS is due to the state where the oil is consumed, not where extracted). Although subject to judicial review, the new ICMS will immediately affect the oil and gas industry.
Second, a new “charge fee” (TFPG*) for control, environmental monitoring, and supervision of research, mining, exploration, and production of oil and gas activities has been introduced. The TFPG, levied on legal entities authorized to conduct research, mining, exploration, and production of oil and gas resources in the State of Rio de Janeiro, will correspond to a fixed price per barrel of oil extracted (R$ 2.71). Failure to pay the TFPG subjects the taxpayer to a penalty that may equal 100% of the fee.
*Taxa de Controle, Monitoramento e Fiscalização das Atividades de Pesquisa, Lavra, Exploração e Aproveitamento de Petróleo e Gás
For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice:
Devon M. Bodoh | +1 (202) 533-5681 | firstname.lastname@example.org
Alfonso A-Pallete | +1 (305) 913 2789 | email@example.com
Murilo Mello | +1 (305) 913 2781 | firstname.lastname@example.org