The Supreme Federal Court (STF) is set to rule on August 28, 2024, on General Repercussion Topic 118 (RE 592.616), where it will express its stance on the constitutionality of including ISS (Service Tax) values in the PIS and COFINS (social contributions) tax base.
This case is one of the “offspring theses” from the century’s debate, Topic 69, which removed the ICMS (Value-Added Tax on Sales and Services) from the PIS and COFINS tax base. It is a highly anticipated ruling for taxpayers, with a potential impact on public coffers of R$ 35.4 billion, according to the Treasury.
The appeal, recognized for general repercussion in 2008 under Topic 118, only began its deliberation in a virtual plenary in August 2021. After a 4×4 tie, Minister Fux requested to highlight the case. Thus, the judgment will resume on August 28, with a notably divided stance among the STF justices.
Initially, voting in favor of the taxpayers were the former rapporteur, Minister Celso de Mello, followed by Ministers Ricardo Lewandowski, Rosa Weber, and Cármen Lúcia. According to the Rapporteur, ISS constitutes merely a simple financial inflow that transits through the taxpayer’s assets and accounting on a transitory basis. Therefore, it should not be considered as revenue and should not be subject to the contributions.
In the words of the distinguished Rapporteur, “The understanding applied to ICMS should be extended to ISS since both taxes share the same collection system.”
On the other hand, Minister Dias Toffoli, who initiated the divergence and was followed by Ministers Alexandre de Moraes, Edson Fachin, and Luís Roberto Barroso, argued for maintaining the incidence of PIS and COFINS over the ISS values. According to them, the ISS collection technique differs from that of ICMS, which is subject to a non-cumulative regime. For this reason, ICMS has an accounting impact on the next link in the economic chain by legal imposition, which is not the case with ISS, given its cumulative nature.
In the words of Minister Dias Toffoli, “In ICMS, due to the non-cumulativity, there is a credit for the entry of goods into the establishment. When it is sold, a debit arises, with the tax amount highlighted on the sales invoice.” “However, in ISS, that specific collection technique, which is typical of ICMS, does not exist. The municipal tax is not subject to non-cumulativity.”
Still to vote are Minister Fux, who requested the highlight, and Ministers Gilmar Mendes and André Mendonça. Considering the votes cast in Topic 69, which originated the “offspring thesis” in question, expectations are that Minister Fux will vote in favor of the taxpayers, while Minister Gilmar Mendes is expected to vote in favor of the Tax Authority. In this scenario, the deciding vote will belong to Minister Nunes Marques, with expectations leaning towards a ruling favorable to taxpayers.
Since this is a ruling in a general repercussion context, the decision will have a binding effect and must be observed by other courts (1st and 2nd instances) as well as by the Administrative Council of Tax Appeals (CARF).
The Tax Law Department of Marins Bertoldi Lawyers remains vigilant on the developments of this issue, standing ready to clarify any doubts about the topic and delve deeper into each business reality.
By Enrique Grimberg Kohane
