PRIO upholds favorable decision to drop Temporary Budget Fund (FOT) requirement

07 Jun 2022

Rio de Janeiro, June 07, 2022 – PRIO, the largest independent oil and gas company in Brazil and a pioneer in recovering and increasing the useful life of mature fields, has just obtained, from the Court of Justice of Rio de Janeiro, the maintenance of a favorable decision to rule out the requirement of the Temporary Budget Fund (FOT) in operations involving imports backed by Repetro-Sped. The State of Rio de Janeiro can still appeal.

The FOT, which conditions the use of tax incentives to the deposit of 10% of the amount corresponding to such financial benefits to the State of Rio de Janeiro, was born to replace the State Fiscal Equilibrium Fund – FEEF (Law No. 7,428/2016). Its calculation basis consists of the ICMS tax benefits granted by the State of Rio de Janeiro, among them the benefits of exemption and reduction of the ICMS calculation basis in acquisitions of goods destined for oil exploration and production fields, under Repetro-Sped.

Only five months after the Law became effective, the Regulatory Decree for the Fund (No. 47.057/2020) was published, clarifying how the calculations would be made, on which benefits the obligation to deposit would fall, among other points. It was only then that the oil and gas operators were surprised that Repetro-Sped was subject to the FOT filing.
In practice, the State of Rio de Janeiro forced the Operators to give up huge sums of money in order to take advantage of the Repetro-Sped tax incentives at the state level. However, after the withdrawal and waivers were made, the state started to require the deposit of the FOT, reducing the tax incentives that were granted under onerous condition and for a fixed term.
The unanimous decision obtained in the second instance represents an important victory for the company and the oil and gas sector, since it reaffirms that the ICMS benefits linked to Repetro-Sped operations, the most relevant in its operation, were granted under a certain term and onerous condition and, therefore, cannot be freely suppressed or diminished, thus respecting the Principle of Legal Security.

“This is a great achievement for the PRIO Tax Legal team, as it reflects the maturity and quality of the work developed in-house. The decision is a paradigm break for the entire oil and gas sector and a significant savings for the company,” stated PRIO’s Tax Manager, Diane de Carvalho.