where the taxpayer in law or in fact is located.However,the law foresees special treatment to the oil industry, according to theFederal Constitution of the Republic, complementary law #87 of 1996 and CONFAZ(National Council of Treasury Policy) the conventions agreed between the memberstates that set out exclusively about the ICMS, where is set out the way taxreplacement occurs, fiscal benefits and their concession and revocation, with thepurpose of harmonizing the respective fiscal accounts between the states.TheFederal Constitution of Brazil has exempted the collection of ICMS on Oil andits derivatives for the states of destination, although there is a legal rule ofnon application on the interstate operations. In this sense, it must be saidthat Supreme Court has already manifested itself for the taxation of themerchandise and the income must be reverted to the state of consumption. Accordingto the Brazilian law, ICMS is calculated over its own tax base, because the valueassigned to goods circulatedalready shows thevalue of this tax. On the other hand, bearing inmind the importance of the collection and non effective power of publicsupervising of States, the legislation in some casesadopts the figure of Tax Liability or Tax Substitute, in which a given taxpayer shall collect the amount due on the entire production chain, ranging fromproduct manufacturing to the end consumer.Asan example of such complexity in the Downstream operation case formanufacturing and sales of gasoline C, usually intended for sale at fuelretailers, is now highlighted. By determination of the Inter-ministerialCouncil of Sugar and Alcohol-CIMA, all Gasoline type C, sold by the liter atthe pump, should contain a 25% mixture of Anhydrous Ethyl Alcohol Fuel (EAAF),forming a chain of production involving Refinery, Sugar Mills, Fuel Distributorand Fuel Retailers. Thus, the refinery provides Gasoline type A to FuelDistributors, who in turn promote a mixture of 25% of EAAF provided by the Sugar Mill and resells Gasoline C to Gas Stations sellingfuel at retail. Accordingly,in the whole production chain of gasoline C there are two suppliers of rawmaterials represented by the Refinery and Sugar Mill, not to mention it iscompleted by the manufacturer of Gasoline C (Fuel Distributor) and Retailers.However,the Refinery has to fulfill its legal obligation as a substitute tax payer,anticipating to the coffers of the state their values resulting from themovement of the fuel in the chain up to the end consumer. For that to happen,the amount of tax collection is calculated on the future operations of thefinal product. That's when the first complexity arises because the Refinery isthe legal party responsible for payment of ICMS tax substitution forward of apartial product affected to its production! i.e. the Refinery, which sellsgasoline type A to the Fuel Distributor is responsible for the tax levy ofGasoline type C sold at pumps to the final consumer, while the sale of rawmaterial EAAF from the Sugar Plant to the Fuel Distributor has deferment orsuspension of tax payment on sale at the time of departure of gasoline type Cfrom the Fuel Distributor, mixed with EAAF, to the Fuel Retailer.Thus,in operations between the EAAF supplier (Sugar Mill) and Fuel Distributor, ICMStax is due by the Refinery, as a substitute