CBS in the Brazil ICMS tax base from 2027: what automotive, agribusiness and mining companies should expect

From January 1, 2027, several Brazilian states, including São Paulo, Minas Gerais and Paraná, intend to charge state VAT (ICMS) on top of the new federal contribution on goods and services (CBS) and the new IBS shown on the invoice. No complementary law requires this, and the first rulings from São Paulo courts have already blocked the charge for companies that sued.

With an 18% intrastate ICMS rate, including CBS and IBS in the base raises the ICMS bill by roughly 11.3% compared with the calculation without them. In long supply chains with thin margins, such as automotive, agribusiness and mining, that shows up in pricing, working capital and, for exporters, in ICMS credits that pile up and cannot be used.

Why CBS in the Brazil ICMS tax base is in dispute

Brazil is replacing its consumption taxes with a dual VAT: CBS (federal) replaces PIS and Cofins in 2027, and IBS (state and municipal) will gradually replace ICMS and the municipal service tax (ISS) between 2029 and 2033. During the transition, old and new taxes coexist on the same invoice.

Lei Complementar 214/2025, the statute that regulates the reform, expressly removes ICMS, ISS, PIS and Cofins from the CBS and IBS base from 2026 to 2032 (art. 12, § 2, V). It says nothing about the opposite direction. The ICMS framework statute (Lei Complementar 87/1996, known as Lei Kandir) still defines the ICMS base simply as the value of the transaction (art. 13, I).

In 2026 the issue has no cash effect, because the test rates (0.9% CBS and 0.1% IBS) are offset against PIS and Cofins. In 2027 CBS is charged in full. On October 28, 2026 the Federal Court of Accounts (TCU) calculated the 2027 CBS reference rate at 11.3%; the Senate still has to set it by resolution, and in 2027 and 2028 the rate actually charged will be the reference minus 0.1 percentage point.

What the state tax authorities say

São Paulo set out its view in Tax Ruling 32,303/2025: once effectively payable, CBS and IBS form part of the transaction value and therefore of the ICMS base, with 2026 excluded. The reasoning is that ICMS always applied to PIS and Cofins embedded in the price, CBS replaces them, and losing that base would cut state revenue. Minas Gerais, Paraná and the Federal District have reportedly taken the same position.

What the courts have decided

As of early November 2026 there are first-instance rulings in favor of taxpayers in São Paulo, and no appellate decision yet.

The leading one is the judgment of the 2nd Public Treasury Court of Santos in writ of mandamus, signed on October 9, 2026. The court declared that, from January 1, 2027, the company (a manufacturer and distributor of electrical and industrial materials) cannot be required to include CBS and IBS in its ICMS base, barred tax assessments on that ground and recognized the right to offset any overpayment after the decision becomes final. A cash refund was denied.

The court relied on two grounds: only a statute can broaden a tax base, and an administrative ruling cannot fill that gap; and CBS and IBS, calculated outside the price, belong to the government and taxing them reproduces the tax-on-tax effect the Supreme Court rejected when it excluded ICMS from the PIS and Cofins base. Other first-instance decisions point out that when Congress wanted a new tax in the ICMS base, it said so: Lei Complementar 227/2026 expressly added the Selective Tax (Imposto Seletivo) to the ICMS base from 2027.

These rulings bind only the companies that sued and are subject to mandatory review by the São Paulo Court of Appeals. A bill to settle the matter (PLP 16/2025) has not been passed.

A worked example

Assume a net price of BRL 100, CBS of 11.2% (the TCU figure less 0.1 point, still pending Senate approval) and IBS of 0.1%, both calculated on the price without ICMS. ICMS is calculated tax-inclusive.

Where the buyer can take ICMS credit, part of this is recovered down the chain. The cost sticks in sales to end consumers, under ICMS tax substitution, in incentive regimes that limit credits and for exporters with accumulated credit balances.

Automotive: tax substitution and the end of IPI

For vehicle makers, parts suppliers and dealers, the main exposure is ICMS tax substitution (substituição tributária), under which the manufacturer collects ICMS for the whole chain on a base built from its own price plus a statutory markup. If CBS enters the manufacturer's price, the inflated base flows through the entire withheld amount, which retailers rarely recover.

São Paulo argues that federal excise tax (IPI), also charged outside the price, is part of the ICMS base. But in sales between taxpayers for resale or further manufacturing, the Constitution keeps IPI out of the ICMS base (art. 155, § 2, XI). In 2027 IPI drops to zero for most products outside the Manaus Free Trade Zone and CBS takes its place without that exclusion. The Selective Tax on vehicles also enters the ICMS base by statute, although its rates had not been enacted by the end of October 2026.

Agribusiness: it depends on where ICMS applies

Many agricultural inputs and products benefit from ICMS exemptions, reduced bases or deferral, and rural producers who do not opt into the regular regime are not CBS or IBS taxpayers (Lei Complementar 214/2025, art. 26, VI). Exposure concentrates in agro-industry, machinery sales and taxed interstate sales. For exporting processors and traders, the higher ICMS paid on domestic purchases adds to credit balances that are already hard to monetize.

Mining: exports protected, domestic sales exposed

Mineral exports are immune from ICMS (Constitution, art. 155, § 2, X, "a"). The impact falls on domestic sales (ore to steelmakers, aggregates, fertilizer inputs) and on taxed purchases that feed accumulated credits. Mining also faces the Selective Tax on extraction, capped at 0.25% (Lei Complementar 214/2025, art. 422, § 2) and due even on exported ore. Because that tax enters the ICMS base by statute from 2027, a miner selling domestically could face two overlapping increases if the states prevail on CBS.

Decisions for the next eight weeks

• Size the exposure by state and ICMS regime, separating recoverable credit from true cost.

• Litigate or pay. Where a formal state ruling exists, a preventive writ of mandamus is available; the Superior Court of Justice held in Repetitive Theme 1,273 that the 120-day filing deadline does not apply to challenges against rules affecting recurring tax obligations. A court deposit is the alternative to an injunction but ties up cash.

• Prepare systems and contracts. ERP settings must handle both scenarios, since injunctions can be reversed, and long-term supply contracts should be checked for clauses on passing through new taxes.

Foreign groups should also factor the issue into intercompany pricing and margin forecasts. Related reading: how to open a foreign company in Brazil and our tax update of October 14, 2026.

Frequently asked questions

Is CBS included in the ICMS base in 2026?

No. The states that have spoken, including São Paulo and Minas Gerais, excluded 2026 because test-year CBS and IBS are offset against PIS and Cofins.

Does any law require CBS in the ICMS base?

No. Lei Complementar 214/2025 keeps ICMS out of the CBS base but is silent on the reverse, and Lei Kandir does not mention CBS or IBS. The states rely on their reading of "transaction value".

Does the Santos judgment protect other companies?

No. An individual writ benefits only the company that filed it, and the judgment is still subject to appellate review.

Can the extra ICMS be recovered as credit?

Partly. Business buyers credit the ICMS shown on the invoice, but the cost becomes final in consumer sales, under tax substitution and for companies with unusable credit balances.

For an assessment of your specific situation, the firm can be reached at contato@okumurasa.com.br.

Legal sources checked on November 4, 2026. This article is for information only and does not replace advice on specific facts.