The Wash-out Clause in the Grains Trade and the Non-incidence of PIS and Cofins

a Case Law Analysis

Abstract

The wash-out clause is a widespread mechanism to mitigate losses in the grains market worldwide. Through such clause a seller in default of the grain delivery obligation is obliged to indemnify the buyer for his default.
According to Brazilian Federal Revenue Service, the income arising from the execution of this clause would be a buyer’s operating income, therefore, subject to the incidence of PIS and Cofins. However, the indemnity nature of wash-out makes it possible to rule out such an understanding.
In this article, the legal concept of revenue was analyzed, in addition to the federal jurisprudence (Carf, TRFs, STF and STJ) – directly or indirectly related to wash-out – to investigate the incidence of non-cumulative PIS and Cofins in the operation. As a result, a minimum backbone was identified, able to guarantee tax neutrality, provided that certain contractual and accounting adjustments are observed.