Contents

Tax Reform and Public Procurement Contracts: How Supplementary Law No. 214/2025 Redefines Economic-Financial Equilibrium

The entry into force of the IBS and CBS ushers in a new phase in relations between businesses and the public sector, demanding advance planning and heightened attention to government contracts.

Supplementary Law No. 214/2025, which implements the Consumption Tax Reform introduced by Constitutional Amendment No. 132/2023, represents one of the most significant overhauls of the Brazilian tax system in recent decades. More than merely altering tax rates, it reorganizes the tax structure governing goods and services, creating direct impacts on both private enterprises and the Public Administration itself.

In brief, Supplementary Law No. 214/2025 establishes two core taxes—the Tax on Goods and Services (IBS) and the Social Contribution on Goods and Services (CBS)—which will gradually replace ICMS, ISS, PIS, Cofins, and, partially, IPI. The new model takes effect on January 1, 2026, initiating a transition period that will require companies to make contractual and strategic adjustments to navigate the new tax burden.

With respect to government contracts, the replacement of existing consumption taxes is expected to alter the effective tax burden borne by companies contracted by the Public Administration.

Recognizing this impact, Supplementary Law No. 214/2025 expressly enshrines the right to restore the economic-financial equilibrium of government contracts, in alignment with the constitutional principle set forth in Article 37, item XXI, of the Federal Constitution. Whenever there is a change in tax charges or tax benefits factored into the contract price, the parties may request a contract revision.

Under Supplementary Law No. 214/2025 itself, a request for economic-financial rebalancing may be submitted for contracts executed prior to the entry into force of Supplementary Law No. 214/2025, as well as for contracts signed thereafter, provided that the commercial bid was submitted prior to January 16, 2025.

In both cases, the contractor must provide documentary proof of the imbalance caused by the new IBS and CBS tax burden.

Rebalancing is therefore not automatic; it requires initiating a dedicated administrative proceeding supported by: (i) calculations demonstrating the shift in tax burden; (ii) an assessment of non-cumulativity effects and tax credits; (iii) an analysis of the feasibility of passing costs through; and (iv) the identification of tax benefits extinguished upon the replacement of existing taxes.

The request must be filed during the term of the contract, prior to any extension or renewal, and may cover specific adjustments or the entire transition period.

Where an economic-financial imbalance stemming from changes in the tax burden is demonstrated, Supplementary Law No. 214/2025 provides for multiple forms of restoration, including the revision of contract values, financial compensation or rate adjustments, renegotiation of deadlines and terms, reallocation of obligations between the parties, as well as other mutually agreed measures consistent with applicable law.

A noteworthy feature of this adjustment proceeding is that it must be processed on a priority basis, with a final decision issued within up to 90 days, extendable once.

With the new system set to take effect, companies holding any type of contract with the Public Administration should conduct legal and economic studies capable of mapping the current ICMS, ISS, IPI, and PIS/Cofins tax burden applicable to each contract, projecting the impact of IBS and CBS on their operations, and preparing comparative spreadsheets and calculation schedules, in addition to monitoring supplementary regulations that will detail the methods for substantiating the imbalance.

It is therefore clear that companies acting proactively to safeguard their right to rebalance contracts with the Public Administration will be able to protect revenue streams derived from government contracts and avoid unnecessary losses during the transition phase established under the Consumption Tax Reform.

Failla Lima Advogados, in partnership with Vinícius Panacho, of Panacho Raymundo Advogados.