At a Glance
Law 15,042/24 (the “Consumption Tax Reform”) was a
milestone for the regulation of Brazil’s carbon market. It
established the regulated market called the Brazilian Emissions
Trading System (SBCE), recognized the “voluntary market,”
and established tax rules for the trade of carbon credits.
Simultaneously, Complementary Law 214/25 regulated various aspects
of the Consumption Tax Reform, providing for the introduction of
new consumption taxes (IBS and CBS) in 2026.
To explain the tax treatment on the sale of carbon credits and
clarify some important points, we have prepared this analysis of
the tax treatment after Law 15,042/24 takes effect (from 2025) and
after Complementary Law 214/25 (from 2026), with a special focus on
the controversy over the levying of IBS and CBS on “carbon
credits.”
Below is a summary of the content and download the complete
content at the end.
Introduction
The main innovation of Law 15,042/24 was the creation of a
typical cap-and-trade system called the Brazilian Emissions Trading
System (SBCE) for operators responsible for sources that emit more
than 10,000 tons of CO2 annually. The SBCE will be implemented in
phases and is currently in Phase 1 of its regulation.
In addition to establishing a “regulated market” per
se, Law 15.042/24 also recognized the “voluntary market”
as the environment characterized by carbon credit transactions (a
tradable, autonomous asset, representing the effective retention,
reduction, or removal of one ton of CO2 emissions)
voluntarily established between the parties, for
the purposes of voluntary offsetting CO2 emissions.
The “voluntary market” for selling carbon credits is
already a reality. There are several projects underway in Brazil by
private and public entities, spanning a wide variety of techniques
(e.g., forestry, renewable energy, biofuels) and at the center of
numerous tax controversies.
Tax Landscape
There is some consensus among tax practitioners that the sale of
carbon credits is not taxed by Local Services Tax (ISS) because it
does not constitute the provision of services; it is not taxed by
State Value-Added Tax (ICMS) because it does not constitute the
sale of goods (whether tangible or intangible); and it is not taxed
by the Federal Excise Tax (IPI) because it does not involve
industrialization or an operation assimilated to industrialization
by law.
Thus, until 2024, the taxation of carbon credits was restricted to
social contributions on net revenue (PIS/COFINS) and Corporate
Taxes (IRPJ/CSLL). The main controversies regarding these taxes can
be summarized as follows:
- For the Carbon Credit Originator opting for the Presumed Profit
and cumulative PIS/COFINS regime: What would be the percentage of
presumed profitability to be applied: (i)
standard percentages of 8% for IRPJ and 12% for CSLL, or
(ii) 32% for IRPJ and CSLL provided for
“assignment of rights”. - For the Carbon Credit Originator opting for the Real Profit and
non-cumulative PIS/COFINS regime: What would be the applicable
PIS/COFINS rate: (i) standard tax rate of
9.25%, or (ii) reduces tax rate of 4.65%
provided for “financial revenues”. - For the Carbon Credit Acquirer opting for Real Profit and
non-cumulative PIS/COFINS regime: Whether the expenditure on the
carbon credit would generate PIS/COFINS credit on inputs, and if it
would be a deductible expense for corporate taxes purposes.
Repercussions and Changes
Law 15,042/24, effective as of January 2025, eliminated all of
these controversies: (i) it provides for
the non-levy of PIS/COFINS on revenues from the sale of carbon
credits (art. 19); (ii) ensures the
deductibility for IRPJ and CSLL purposes of expenditures on carbon
credits (art. 18); and (iii) institutes a
specific system of taxation for IRPJ and CSLL purposes
(iii.1) in presumed profit, as a
“capital gain” without applying any percentage of
presumed profitability, and (iii.2) in
real profit, under the “net gains” regime for sales on
the stock exchange or “capital gain” for sales off the
stock exchange.
Thus, as of January 2025, the sale of carbon credits will not be
subject to ICMS, ISS, IPI (as they are not taxable events), and
PIS/COFINS (as expressly provided for in Law 15,042/24). Only
IRPJ/CSLL will be taxed, in accordance with the special taxation
rule indicated above.
With the regulation of the Consumer Tax Reform by Complementary
Law 214/25, the new taxes (IBS and CBS) will be levied from 2026 in
a “test phase.” From 2027 onwards, CBS will be levied,
and PIS/COFINS will be abolished. From 2029, IBS will be levied,
with a staggered reduction in ICMS and ISS.
The main controversy is over the incidence of IBS/CBS on
“carbon credits.”
On the one hand, it could be argued that the IBS/CBS levy is
possible because Article 156-A of the Federal Constitution
(included by EC N. 132/23) allows IBS and CBS to be levied on
“material or immaterial goods, including rights,” and
Complementary Law N. 214/25 made no exception for the sale of
carbon credits. Thus, unlike the ISS and ICMS, the legal nature of
carbon credits (tradable assets representing the retention,
reduction, or removal of one ton of CO2 emissions) does not prevent
IBS and CBS from being levied.
On the other hand, it should be noted that Article 146 §3
of the Federal Constitution (also included by EC N. 132/23)
provides that the National Tax System must observe
the principle of environmental protection. Charging the IBS/CBS –
at least, without any mechanism for presumed credits or cashback –
would significantly increase the tax burden purchases in the
voluntary carbon credit market by non-IBS and CBS taxpayers (e.g.
individuals) or taxpayers not subject to the regular IBS and CBS
regime. It appears to violate the constitutional requirement to
protect the environment.
What Conclusions Can We Draw?
As of January 2025, the sale of carbon credits will not be
subject to any consumption taxes (ICMS, ISS, IPI and PIS/COFINS).
Income tax will only be levied on the capital gain from
origination/trading, in accordance with the special rules set out
in Law 15,042/24.
As of January 2027, CBS will be levied instead of PIS/COFINS.
There is some controversy over the possibility of levying the tax
on carbon credits because charging the CBS (and later the IBS) – at
least without any mechanism for presumed credits or cashback –
would significantly increase the tax burden for purchases in the
voluntary carbon credit market by non-IBS and CBS taxpayers (e.g.
individuals) or taxpayers not subject to the regular IBS and CBS
regime.
The abrupt increase (from zero to approximately 28%) in the tax
burden of an asset whose commercialization is aimed precisely at
remunerating the agent who carried out the retention, reduction or
removal of CO2 appears to violate article 146 §3 of the
Federal Constitution, Article 146 §3 of the Federal
Constitution, which states that the National Tax System
must observe the principle of environmental
protection. This is an issue that must be better discussed within
the National Congress and the IBS/CBS Steering Committee.
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