Brazilian processor JBS SA lost a lawsuit on Tuesday in the state of Mato Grosso do Sul, where a 6-year-old decree impedes meat exporters from taking advantage of a tax break on the state's circulation of goods and services tax, or ICMS.
The decree, no. 12056 which went on the state's books in 2006, permits only companies that sell their goods domestically to take advantage of a credit up to 50 percent on the state ICMS.
Most companies in the state already have their ICMS rate reduced to 4 percent by various means, but through this benefit it would be reduced to 2 percent.
As Brazil's largest beef exporter, JBS and other exporting companies in the state are ineligible.
JBS' attorney in the case, Fabio Augusto Chilo, said Mato Grosso do Sul's application of the tax benefit is a clear violation of equal treatment for businesses, with JBS being punished simply because it doesn't limit itself to domestic sales.
The court decision is not a material one for JBS in Mato Grosso do Sul; the company simply wanted to challenge the concept behind the legislation, Jerry O'Callaghan, investor relations director, told Meatingplace.
ICMS tax is applied in each state, and with JBS doing the majority of its exporting from Sao Paulo, this type of tax benefit would only have real impact on JBS if it occurred in Sao Paulo.
In the unanimous court ruling Tuesday, ministers of the 2nd Chamber of the Superior Court of Justice (STJ) ruled in favor of the state, saying they accept that the decree from 2006 is intended to balance the playing field between large and small companies.
With the tax break, JBS would have too great an advantage over smaller processors, the court said.
Exporters in the state already benefit by not having to pay certain taxes on products they export.
JBS' lawyer said the company will likely appeal the state court's decision to the Federal Supreme Court.
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