Example of ICMS Differential Calculation

For instance, in an interstate transaction between two states, São Paulo (SP) and Pernambuco (PE), the ICMS differential calculation is based on the following tax rates:

• ICMS Internal Tax Rate in SP = 18%

• ICMS Internal Tax Rate in PE = 17%

• Interstate Tax Rate between SP and PE = 7%

• ICMS Diff amount = ICMS Internal Tax Rate in PE - Interstate Tax Rate (17% - 7%)

When the transaction is for a line amount of R$1000, then:

ICMS Interstate Tax Rate paid to Selling State = 7% of R$1000 = R$70.00

ICMS Differential amount = 10% of R$1000 = R$100

This ICMS Differential amount (R$100) will be shared between SP and PE and transitioned gradually to PE (destination state) as follows:

Year	PE (Destination State)	SE (Origin State)
2016	R$40	R$60
2017	R$60	R$40
2018	R$80	R$20
2019 onwards	R$100	R$0