Authors:
Gabriel Manica
LLM. in Economic Law from Cândido Mendes University and partner with Castro Barros Advogados
Karen Stevanato König
Lawyer with Castro Barros Advogados
TAX ASPECTS OF DISTRIBUTED GENERATION AND SELF-PRODUCTION OF ELECTRIC ENERGY IN BRAZIL[1]
The organizers of this book have honored us with the invitation to participate in this work on the present and future perspectives of energy taxation in Brazil.
In a scenario in which renewable energies are becoming increasingly relevant, we address the taxation of distributed generation and self-production of electricity, especially with regard to the peculiarity of the absence of circulation of goods, and consequently the impossibility of assessing ICMS.
Solar power stands out in the context of energy generation, and Brazil currently has more than 500 thousand photovoltaic facilities[2], with generation capacity of up to 20 GW[3], which can be classified into two broad categories: (i) large-scale centralized generation plants connected to the national power grid, supplying energy mainly to distributors and energy-intensive industries; and (ii) distributed generation facilities, which are smaller in size and usually supply homes and commercial establishments.
Regarding distributed energy generation, with the publication in 2012 of Normative Resolution 482 by the National Electric Energy Agency (ANEEL[4]), consumers were allowed to generate their own electricity from renewable sources, in the form of distributed micro- and mini-generation, by establishing the respective conditions and creation of the Electric Energy Compensation System (SCEE[5]).
The SCEE[6] allows consumer units to accumulate credits corresponding to the energy they produce and inject into the distribution network, which is transferred free of charge to the local distributor. Subsequently, these credits can be offset by the consumer units with the volume of electric energy that they consume (called surplus electric energy[7]).
In order to keep track of the flow of energy, the consumer units must have bidirectional meters that record the energy consumed and the energy injected into the grid.
In November 2015, ANEEL Normative Resolution 687 came into force, changing the rules on distributed generation and bringing some important innovations, with emphasis on the introduction of the shared generation format, which allows consumers to form groups to share the energy from a single generating unit.
Subsequently, in 2022 the legal framework was established for distributed micro-generation and mini-generation and the SCEE through the enactment of Law 14,300, which introduced more detailed rules applicable to the distributed generation market.
In 2023, ANEEL Normative Resolution 1,059 was issued, revoking NR 482 and improving the rules for the connection and billing of distributed micro-generation and mini-generation plants in electricity distribution systems, as well as the SCEE rules.
In view of this regulatory scenario, several consortiums and cooperatives were created with the purpose of enabling their respective members to develop the activity of distributed mini- or micro-generation of electric energy through the joint operation of a single generating plant. So, its respective production is entirely allocated for the consumption of the consortium/cooperative itself, in the proportion that is established for each member (article 14 of Law 14,300/2022, article 655-H of ANEEL Resolution 1,059/2023). In other words, mini-generation is installed in a generating plant owned by the consortium or cooperative, whose credits for the energy generated therein will be offset in the consumer units of the respective consortium/cooperative members.
The energy percentages defined by the consortium/cooperative members must be communicated to the energy distributor so that it can promote compensation between the energy produced in a shared manner and the private consumption of each member, also individually charging for any balances of energy supplied to each consumer unit.
The possibility also exists of self-production of electricity, which specifically covers the unregulated energy market and aims to generate energy for self-consumption, to partially or fully cover the self-producer's demand. To do so, the self-producer depends on a concession or authorization, according to article 1 of Decree 2,003 of 1996.
Under the terms of article 2, numeral II, of Decree 2,003 of 1996[8], the self-producers of electric energy can also be individuals or legal entities gathered in a consortium.
In light of this scenario, it is clear there cannot be ICMS charged on distributed generation and self-production of electric energy, precisely because in both cases the energy is intended for self-consumption.
As is generally known, article 155, numeral II, of the Constitution limits the incidence of ICMS to commercial transactions of goods, which naturally is reflected in Complementary Law 87/1996, especially in its article 1.
The Superior Court of Justice (STJ, the highest court for non-constitutional matters), in the judgment of Special Appeal 38.344/PR[9], characterized electric energy as a type of merchandise, since it “is produced to be sold (commercial transaction), without impediment to being identified as such, a private concept admitted by tax law.”
Therefore, it can be seen that the position of the STJ is that electric energy is a type of merchandise, and therefore the incidence of ICMS is allowed on its sale (supply).
In this regard, in April 2015, CONFAZ ICMS Convention 16 was published, regulating the ICMS exemption on electricity compensation transactions involving distributed generation.
It is important to clarify that this Convention was issued during the validity of ANEEL NR 482/2012, therefore disregarding the innovations that were implemented by NR 687/2015 and by Law 14,300/2022, so that the aforementioned exemption does not apply: (i) to shared generation modalities (Consortium or Cooperative); and (ii) to the production of energy by mini- or micro-generators with installed power above 1 MW[10].
Consequently, ICMS cannot be applied to distributed energy generation, so that it is a clear case of non-incidence rather than exemption (as stated in the aforesaid Convention).
This is because in distributed generation and self-production, there is no legal circulation of goods, since there is no transfer of ownership of the energy produced.
Therefore, Law 14,300/2022, in the ambit of distributed generation, via article 1, numerals III and V, and article 28[11], introduced the concept of “consumer-generator” and stablished that mini-generation is characterized as the production of electric energy for own consumption (self-consumption). It also clarified that cooperatives and consortiums comprise groups of individuals or legal entities that have consumer units with distributed micro- or mini-generation, with all consumer units being served by the same distributor, i.e., it is necessary to be within the same concession area of the distributor that supplies the energy to the consumer units.
Under these circumstances, we can conclude that the use of electric energy produced by the so-called “consumer-generator” to supply its consumer units would be equivalent, at most, to the transaction of transferring goods between different establishments of the same owner, without materializing an ICMS taxable event.
Article 1, numeral XIV, of Law 14,300/2022 establishes that the energy injected into the local distributor's network is granted as a free loan, and subsequently is offset against the consumption of active electric energy or is accounted through energy credits of consumer units participating in the system.
ANEEL has also already expressed its position on the matter through Opinion 00338/2018/PFANEEL/PGF/AGU, to the effect that there is no sale of energy in this relationship:
“By installing, maintaining and operating its asset, using the energy it generates, the consumer acts as a generator, not a generator holding a concession, permission or even authorization, but a singular generator with characteristics outlined by Resolution 482/2012. In reality, it is a hybrid of consumer and generator, a hybrid that has been conventionally called a “prosumer”. (...)
As previously introduced, there is no systemic relationship in the distributed mini- and micro-generation of Resolution 482/2012. The relationship is established between the distribution concessionaire and the consumer or prosumer. There is no purchase and sale of energy, and generation is carried out in the exclusive interest of the consumer.” – emphasis added
In this respect, on April 13, 2023 the Federal Supreme Court finalized the judgment of Direct Action for Constitutionality (ADC) 49[12], to declare the unconstitutionality of articles 11, § 3, index II, and article 12, index I (in the wording "even if for another establishment of the same owner ") and article 13, §4, of Law 87/1996, relative to the charging of ICMS on the transfer of goods between establishments of the same legal entity. On this occasion, the Supreme Federal Court held that “the hypothesis of incidence of the tax is the contractual transaction carried out by a merchant that entails the circulation of goods and transfer of their ownership to the final consumer.”
Furthermore, when the STJ issued Statement of Consolidated Position (Sumula) 166, it also defined that “the simple movement of goods from one establishment to another, of the same taxpayer, without typifying an act of merchandising, does not legitimize the incidence of ICMS.”
In this regard, on December 28, 2023, Complementary Law 204 was enacted, which included §4 in article 12 of Complementary Law 87/1996, providing that the transfer of goods from one establishment to another with the same ownership is not considered a taxable event for ICMS, ratifying the prevailing jurisprudential guidance on the subject.
Thus, the rule established by the Supreme Federal Court in the judgment of ADC 49, by the STJ in Súmula 166, and by Complementary Law 204/2023, determines that the simple physical transfer of goods is not sufficient to characterize a hypothesis for incidence of ICMS, which presupposes the occurrence of commercial transaction (understood as transfer of ownership). And this kind of transaction is not present in the case of self-consumption of electric energy, whether within the scope of distributed generation or self-production.
Therefore, it is impossible to assess ICMS on the generation of electricity for self-consumption.
Furthermore, in case of distributed micro- or mini-generation, it is not possible to impose ICMS on the Distribution System Usage Tariff (TUSD)[13] that consumer units must pay for using the distribution electric system.
Indeed, if ICMS is not levied on electricity within the scope of distributed generation and self-production, the ICMS cannot be levied on the TUSD charge either.
This position does not contradict the recent guidance of the STJ in Theme 986, to the effect that: “The Transmission System Usage Tariff (TUST) and/or the Distribution System Usage Tariff (TUSD), when included in the electricity bill as a charge to be borne directly by the final consumer (whether free or captive), is part of the ICMS calculation basis for the purposes of art. 13, § 1, II, 'a', of Complementary Law 87/1996.”
As can be seen, in the judgment related to the aforementioned topic, STJ decided to include TUSD and TUST in the calculation basis of ICMS on the supply of electric energy. However, when it comes to distributed generation and self-production, there is no supply per se, so the ICMS generating event is not materialized, and consequently there is no calculation basis (for the inclusion of TUSD).
For these reasons, the demand for ICMS on distributed generation and self-production of electric energy is improper, just as is the assessment of ICMS on the TUSD in this context.
However, what occurs in practice is the guidance of State Revenue Offices to charge ICMS on any and all energy and on the TUSD, without making a distinction between the volumes of energy originating from distributed generation and self-production, since they mistakenly believe that the mere passage of energy through the distribution system materializes the occurrence of an ICMS-generating event.
For example, the revenue authorities in the states of Pernambuco and São Paulo require the charging of ICMS on self-produced electricity and on TUSD. On the other hand, the revenue authority in the state of Ceará has already recognized that ICMS does not apply on self-produced energy, but maintains the charging of ICMS on the TUSD, as it incorrectly believes that TUSD in itself materializes an ICMS taxable event.
In this regard, many electric power companies require consumers to pay ICMS on the energy they produce for self-consumption, leading to many lawsuits.
Consequently, solid jurisprudence has been developing regarding the non-incidence of ICMS on distributed generation and self-production of energy.
In this respect, we highlight the following judgments from the Goiás and Mato Grosso State Courts:
“1. ANEEL Normative Resolution 482/2012 established the general conditions for the access of distributed micro-generators and mini-generators to the electricity distribution systems and electricity compensation system. 2. In this system, the surplus energy injected into the public grid is transferred, via free loan, to the local distributor, and at a later date is offset against the energy supplied by the distributor, with only the physical circulation of the electric energy, not legal circulation, thus not configuring a hypothesis for levying ICMS. 3. The electric energy compensation system does not adapt to the circulation of goods, and therefore the incidence of ICMS, which presupposes an effective commercial act with the purpose of obtaining profit, and the transfer of ownership, hypotheses that do not occur in the situation under analysis. (Goiás State Court of Appeals, Lawsuit no. 5377713-39.2022.8.09.0051, 7th Civil Chamber, Judge Doraci Lamar Rosa da Silva Andrade, decision published on February 16, 2024)
“1. Theme 986 of the Superior Tribunal of Justice discusses the “inclusion of the Tariff for Use of the Electric Energy Transmission System (TUST) and the Tariff for Use of the Electric Energy Distribution System (TUSD) in the ICMS calculation basis”, but it does not discuss the incidence of TUSD on consumers who produce their own electricity from solar panels, which is the case in question.
2. ICMS is not levied on TUSD related to the micro-generation system of energy (solar energy) due to the absence of energy sale. Hence, there is no taxable event to support the assessment of the state tax.”
(Mato Grosso State Court of Appeals, Lawsuit no. 1002815-75.2022.8.11.0041, Second Public Chamber, Judge Mario Roberto Kono de Oliveira, decision published on February 23, 2023)
The Ceará State Court of Appeals has recognized that the self-consumption of electricity by a cooperative or consortium does not materialize in circulation of goods, so there is no ICMS-triggering event, even for TUSD:
“That is why Brazilian jurisprudence holds that when dealing with solar energy generated by micro- and mini-generators, it is inadmissible to levy ICMS on both the surplus injected into the local distribution network and the use of the concessionaire’s distribution system, billed by TUST (Distribution System Usage Tariff), since in the transaction carried out there is no legal circulation of the asset (marketing of solar energy), but merely a free loan, which eliminates the occurrence of the triggering event of the aforementioned tax.”
(Ceará State Court of Appeals, Lawsuit no. 0208318-74.2022.8.06.0001, 3rd Panel, Judge Ana Paula Feitosa Oliveira, decision published on June 30, 2023)
Based on the considerations set out above, and taking into account the future outlook proposed in this work, it would be important for the State Revenue Authorities to acknowledge there is no ICMS on self-produced energy, whether through distributed generation or self-production, and likewise there can be no state tax on TUSD in these cases.
Finally, it should be noted that the levying of ICMS on the consumption of electricity produced within the scope of distributed generation and self-production of energy contradicts the purpose of stimulating the production of clean and renewable energy.
In addition to the improper assessment of ICMS on self-consumed energy, the distributed generation and self-production market faces other unreasonable tax requirements that unduly burden its activities, such as: the charging of abusive and disproportionate inspection fees by Municipal Tax Authorities; the improper retention of PIS and COFINS on electricity bills; the unreasonable charge of ICMS on the transportation of equipment dedicated to energy production, including the abusive retention of such devices by State Tax Authorities; among other tax issues that challenge the sector.
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[1] The present article was published in the book Hoje e o Amanhã na Tributação de Energias (Energy Taxation Today and Tomorrow)
[2] https://www.gov.br/mma/pt-br/assuntos/brasil-na-cop/os-avancos-e-o-futuro-da-energia-solar-no-brasil-sao-destaques-na-rodada-de-paineis-no-estande-do-pais-na-cop-27; consulted on June 28, 2024.
[3] https://www.gov.br/mma/pt-br/assuntos/brasil-na-cop/os-avancos-e-o-futuro-da-energia-solar-no-brasil-sao-destaques-na-rodada-de-paineis-no-estande-do-pais-na-cop-27; consulted on June 28, 2024.
[4] In Portuguese, this acronym stands for Agência Nacional de Energia Elétrica.
[5] In Portuguese, this acronym stands for Sistema de Compensação de energia Elétrica.
[6]Law 14,300/2022:
“Art. 1. For the purposes and effects of this Law, the following definitions are adopted: (...)
XIV - Electric Energy Compensation System (SCEE): system in which active energy is injected by a consumer unit with micro-generation or mini-generation distributed in the local distributor's network, granted under the title of a free loan and subsequently compensated with the consumption of active electric energy or accounted for as energy credits of consumer units participating in the system.”
[7] “VIII - surplus electric energy: positive difference between the electric energy injected and the electric energy consumed by a consumer unit with micro-generation or distributed mini-generation owned by a consumer-generator, determined by a tariff station at each billing cycle, except in the case of an undertaking with multiple consumer units or shared generation, in which the surplus electric energy may consist of all the energy generated or injected into the distribution network by the generating unit, at the discretion of the consumer-generator that owns the consumer unit with micro-generation or distributed mini-generation;
[8] “Art. 2. For the purposes of the provisions of this Decree, the following shall be considered: (...)
II - Self-producer of Electric Energy, the individual or legal entity or companies grouped together in a consortium that receive a concession or authorization to produce electric energy intended for their exclusive use.”
[9] STJ. Special Appeal 38.344/PE, 1st Panel, Reporting Judge Humberto Gomes de Barros, writing for the majority, Judge Milton Luiz Pereira, published in the DJU of October 31, 1994.
[10] MW (Megawatt) is a measurement unit corresponding to a million watts (W).
[11] “Art. 1. For the purposes and effects of this Law, the following definitions are adopted: (...)
V – consumer-generator: owner of a consumer unit with distributed micro-generation or mini-generation; (...)
X – shared generation: modality characterized by the grouping of consumers, through a consortium, cooperative, voluntary civil or construction condominium arrangement or any other form of civil association established for this purpose, composed of individuals or legal entities that have a consumer unit with micro-generation or distributed mini-generation, with all consumer units being served by the same distributor.” – Emphasis added
“Art. 28. Distributed micro-generation and mini-generation are characterized as the production of electric energy for self-consumption.” – emphasis added
[12] “In view of this, it is clear that due to its legal irrelevance for taxation, this is a hypothesis that is completely unrelated to the provisions of art. 155, §2, II, of the Federal Constitution.” The interstate transfer of goods between establishments of the same legal entity is therefore equivalent to mere physical movement.
From the perspective presented, the interstate movement under discussion, since it is merely physical, would be equivalent to exchanging on-the-shelf merchandise, which undoubtedly constitutes a hypothesis that is foreign to ICMS. (DOC. 88, p.13) (...)
The article declared unconstitutional by this Supreme Court establishes that “each establishment of the same owner is autonomous”. From the literal reading of this provision, it can be inferred that the branches are autonomous in relation to their parent company, so they can even assume their own obligations.
The Court, in turn, declared the partial unconstitutionality, without reduction of text, of the aforementioned provision for the purposes of charging ICMS on the transfer of goods between establishments owned by the same legal entity, without repercussions on instrumental duties.” – emphasis added
[13] The Distribution Usage Tariff (TUSD) is owed for the use of the energy distribution system, which is responsible for supplying electricity in a shared manner to medium and small consumers, and is covered by the payment of the tariff, according to ANEEL Resolution 281/99. The TUSD charge is not related to the actual consumption of electricity, but to the cost of its distribution.