Inclusion of ISS in the PIS and COFINS calculation base

After the cancellation of Justice Luiz Fux's motion in RE 592.616 (Matter 118), which discusses the inclusion of ISS in the PIS and COFINS tax base, the Brazilian Supreme Court (STF) included the matter on the agenda for 8/28/2023, the date on which the trial that began in 2021 was to be resumed.

Matter 118 is an "offspring theses" of Matter 69, which excluded ICMS from the basis for calculating these contributions.

In view of the cancellation of the motion, the virtual full court session will resume where it left off. At the time, eight Justices voted, four of whom were in favor of excluding ISS from the PIS and COFINS tax base (Celso de Mello, Rosa Weber, Ricardo Lewandowski and Carmen Lúcia) and four against (Dias Toffoli, Alexandre de Moraes, Edson Fachin and Luís Roberto Barroso).

The votes of Justices Celso de Mello, Rosa Weber and Ricardo Lewandowski, in favor of the taxpayers, will be upheld, since they have already retired. As for the remaining Justices, they may change their stances until the judgment is handed down.

In 2021, Justice Celso de Mello, who was the rapporteur of the case, stated in his vote that the grounds for excluding ICMS from the PIS and COFINS calculation base, presented in 2017 in the judgment of Matter 69, are entirely applicable to the case at hand, since ISS represents a mere transitory financial entry through the taxpayer's assets and accounts and lacks a definitive nature. As such, it should not be considered as operating revenue/income and is therefore not subject to PIS and COFINS contributions.

On the other hand, Justice Dias Toffoli dissented to point out that he maintains the view he expressed in the judgment of Matter 69, as he believes that ICMS is part of the PIS and COFINS calculation basis, but also presented differences between ISS and ICMS.

According to the dissenting vote, unlike the ICMS, the ISS is not subject to non-cumulation, which represents a different collection technique, since there is no book repercussion of the ISS, so that the amount corresponding to the ISS embedded in the price of the service provided integrates the assets of the service provider in a definitive manner, and therefore the established understanding on the ICMS would not be applicable.

Justices Edson Fachin, Roberto Barroso and Alexandre de Moraes followed the dissenting vote.

It should be noted that Justices Nunes Marques, Flávio Dino and Cristiano Zanin, who replaced Celso de Mello, Rosa Weber and Ricardo Lewandowski, will not vote in the Full Court Session, since the votes of the retired Justices will be upheld.

Given the high financial impact of the issue, if the STF concludes that ISS should be excluded from the PIS and COFINS tax base, it is likely that the effects of the decision will be modulated to limit the period and conditions for recovering the amounts paid.

Considering the recent cases judged by the STF, it is possible that the right to the past will only be safeguarded for taxpayers who already have a lawsuit on the matter.

Thus, considering the financial relevance, we suggest that companies affected by the issue check if they have a legal action in progress and, if not, analyze whether or not they should file a lawsuit before the trial resumes on 8/28/2024.

MOA Advogados may be able to help you with this matter. Contact us.