Tax reform in Brazil’s power sector: IBS, CBS and credits

The tax reform replaces ICMS, PIS and Cofins with IBS and CBS in the electricity chain as well — and, for the sector, the change is structural: full non-cumulativity comes in (broad credit on Capex and inputs), collection shifts to split payment, and concession contracts need rebalancing. The transition runs from 2026 to 2033, and today’s ICMS tax base, defined by the case law of the STJ and the STF, is what determines how much credit a company carries into the new system.

Electricity was never an ordinary “good”. It is produced and consumed in the same instant, travels over a shared physical grid and is traded in two contracting environments with rules of their own. That is why the tax reform — established by Constitutional Amendment 132/2023 and regulated by Complementary Law 214/2025 — treats the power sector with specific provisions, and why applying the new VAT’s general rule without specialist reading is a fast track to losing credit or inheriting liabilities. Below, the TaxUp team sets out what changes, what the case law has already decided and what companies in the sector need to do now.

The three new taxes reach electricity

The reform swaps five taxes on consumption for a dual VAT model plus the Selective Tax:

The Selective Tax is a new tax with an extra-fiscal function, and it does not replace the IPI: the IPI remains in force, but with rates reduced to zero for the generality of products — except those competing with the Manaus Free Trade Zone. For the power sector, the game is in IBS, CBS, credits and split payment, not in the Selective Tax. And the starting point for all of it is the current ICMS tax base, which the case law has consolidated in recent years.

Today’s tax base decides tomorrow’s credit

Before discussing the future, one must understand the present: the larger the ICMS base today, the larger the credit a company will carry into the IBS. Three decisions define that size — and they remain live through the transition.

STJ Theme 986 — TUSD and TUST enter the ICMS base

In the repetitive-appeals procedure (REsp 1,734,946/SP, among the leading cases of Theme 986, 1st Panel, judged on 13/03/2024), the STJ held that the Transmission System Use Tariff (TUST) and the Distribution System Use Tariff (TUSD) — collectively, the System Use Tariffs — TUSD/TUST — when charged on the bill as a cost to the final consumer, whether free or captive, form part of the ICMS tax base, under the terms of art. 13, § 1, II, “a”, of Complementary Law 87/1996. The modulation carved out only those holding a lawsuit with an injunction granted and in force until 27/03/2017, without a deposit; later decisions, such as RMS 77,103/RO, confirm that the rule does not benefit the remaining taxpayers.

STJ Precedent 391 — ICMS only on the electricity actually consumed

STJ Precedent 391 establishes that “ICMS falls on the value of the electricity tariff corresponding to the power demand actually used”. In other words: power demand merely contracted and not used stays out of the base (REsp 960,476/SC; AgRg in REsp 797,826/MT). The taxable event is actual consumption — and this concept tends to migrate directly into the design of the IBS and CBS taxable event by activity.

The “Thesis of the Century” (STF Theme 69) — ICMS out of PIS and Cofins, and the refund on the power bill

In Theme 69 (RE 574,706, merits judged in 2017), the STF held that ICMS is not part of the PIS and Cofins tax base. In the power sector, this gained a chapter of its own: Law 14,385/2022 authorised ANEEL to regulate the refund to consumers of the amounts overcharged, and the STF upheld the constitutionality of this framework in ADI 7324 (2025). Since the CBS replaces PIS and Cofins in 2027, the asset (and the liability) from this thesis must be settled before the migration.

“In the power sector, mastering the ICMS case law is not an academic exercise — it is what defines the size of the credit a company carries into the IBS. Those who adjust the base now get a head start in the transition.”

TaxUp team · Tax Practice

What changes by activity

Each link in the chain has a different economic nature and, for that reason, feels the reform in its own way:

• Generation — sale of the energy generated in the Regulated Contracting Environment (ACR) or the Free one (ACL); the timing of the taxable event tracks availability and metering.
• Transmission — remunerated by grid availability (Permitted Annual Revenue), not by volume; it requires a reading of the base of its own.
• Distribution — supply to the captive consumer, with charges, subsidies and CDE Fund discounts that must be isolated in the base.
• Trading — purchase and sale of energy, including the retail trader, which receives a specific rule on liability for collection.
• CCEE — settlement in the short-term market is multilateral, not a simple bilateral sale, which calls for a rule of its own on base and taxable event.

Full non-cumulativity: the sector’s biggest gain

If there is good news in the reform for the power sector, it is full non-cumulativity. Under the current regime, ICMS, PIS and Cofins credits on assets, works and services are limited and litigious. In the new model, the rule is the broad credit: everything acquired, taxed by IBS/CBS and used in the activity generates credit.

For a capital-intensive chain, this is transformative. Machines, equipment, substations, lines and infrastructure works come to generate credit on a far broader basis — crucial for generation and transmission. The concessionaires have an extra technical point: the assets tied to the concession (reversible to the granting authority) have a crediting rule of their own, which must be read together with the rebalancing of the contract. In practice, the sector’s tax planning becomes a job of maximising the favourable effective rate via legitimate credits — the heart of the recovery of ICMS and PIS/Cofins credits in the transition.

Split payment: the end of the tax “float” on the power bill

The split payment is the deepest operational change in the reform. The moment the customer pays the bill, the financial system automatically separates the IBS and CBS portion and forwards it to the tax authority — the supplier receives only the net amount. For a sector of massive, recurring billing, this reorganises cash, systems and reconciliation.

The mechanism is being tested in 2026 and goes into operation from 2027, with priority for Pix and boleto. There are two models: the standard one, which uses the invoice data to compute the exact tax, and the simplified one, which applies an estimated percentage. For distributors and traders, the effect is direct: the tax “float” disappears, and working capital must be re-engineered.

Distributed generation and solar energy

Distributed generation combines good news and bad. The energy injected and offset on the grid (offset system) is excluded from the tax base of the IBS and CBS (art. 28, § 3, of LC 214/2025), preserving the model that makes distributed generation viable. On the other hand, photovoltaic equipment previously exempt from ICMS in several states now bears IBS and CBS — which changes the payback of projects and the purchasing strategy. Anyone investing or operating in solar must redo the maths while still inside the transition window.

ICMS credit balance: the 240 instalments no one can ignore

The power sector is a structural accumulator of credit: it buys Capex and inputs at the full rate and often sells energy under a reduced rate or deferral. The result is a growing credit balance.

The transition rule is clear: ICMS credit balances assessed and existing on 31 December 2032 may be offset against the IBS — or refunded on a residual basis — in up to 240 monthly instalments, under art. 134 of the ADCT (added by Constitutional Amendment 132/2023) and the complementary law of the IBS Steering Committee (LC 227/2026). Market estimates point to a sizeable stock of accumulated credits across the country. Assessing and shielding these balances before 2033 — and distinguishing “accumulated credit” from “credit balance” — is one of the sector’s priorities.

Transition timeline (2026–2033)

What your energy company should do now

1. Review the ICMS base with TUSD and TUST, confirming the correct inclusion post-Theme 986 and the effect on the credit that migrates to the IBS.
2. Audit the contracted demand, ensuring ICMS falls only on the electricity consumed (Precedent 391).
3. Assess PIS and Cofins to recover (the Thesis of the Century and the refund under Law 14,385/2022).
4. Assess the ICMS credit balance at 31 December 2032 and plan the flow of the 240 instalments.
5. Map IBS/CBS credits on Capex, inputs and assets tied to the concession.
6. Adapt ERP and billing to split payment and to the IBS/CBS highlighting, testing in the 2026 window.
7. Review contracts and prepare the economic-financial rebalancing of the concessions with ANEEL.

The logic of mapping base, credits and credit balance before the turn is the same that guides the reading of the reform in other regulated sectors, such as the healthcare regime and the architecture of the transition period.

The reform in the power sector is not an accounting adjustment — it is a simultaneous redesign of tax, regulatory and contractual matters. Treating the three dimensions together is what captures credit, protects the tariff and avoids contingency.

TaxUp team · Tax Practice

Frequently asked questions

Informational content; it does not replace individualised analysis. Sources: Constitutional Amendment 132/2023 and LC 214/2025 (Planalto); LC 227/2026; STJ — Theme 986 (REsp 1,734,946/SP) and Precedent 391 (REsp 960,476/SC); STF — Theme 69 (RE 574,706) and ADI 7324; Law 14,385/2022. Updated in June 2026.