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The Supreme Federal Court of Brazil, in the judgment of RE No. 1.346.152/SP (Theme 1,217), established that it is unconstitutional for municipalities to set monetary correction indexes and late-payment interest rates higher than those adopted by the Federal Government for the same purpose.

In the majority opinion, Justice Cármen Lúcia emphasized that default interest and monetary correction of tax credits fall within financial and tax law, a matter subject to concurrent legislative competence under Article 24, I, of the Brazilian Federal Constitution.

Under this framework, the Federal Government is responsible for issuing general rules, while States and the Federal District may supplement them. Municipalities, however, do not have concurrent legislative authority over the matter and may only supplement federal legislation “where applicable” (Article 30, II of the Constitution), without contradicting national standards. According to the reporting Justice, allowing municipalities to apply rates higher than federal parameters would undermine the unity of the legal system and fiscal federal balance.

The decision also addressed the Selic rate, noting that it is part of the Special System for Settlement and Custody, administered by the Central Bank, and constitutes a key instrument of monetary policy and public debt management.

Since Law No. 9,250/1995, the Selic rate has been uniformly adopted for updating federal tax debts, and its cumulative application with other indexes is prohibited. On this basis, the Court found it unjustifiable for municipalities to adopt rates exceeding the Selic, particularly when combining monetary correction with monthly interest of 1%.

Finally, the Justice referred to Constitutional Amendment No. 113/2021, which established the use of the Selic rate for updating and compensating late payments in disputes involving the Public Treasury, regardless of the nature of the debt. The ruling has immediate application, including to pending cases.