The Supreme Federal Court (STF) suspended yesterday (08/28/2024) the ruling on Theme 118 of general repercussion (RE 592.616), in which the Court is analyzing the constitutionality of including ISS amounts in the calculation base of PIS and COFINS.

This discussion has been highly anticipated by taxpayers, given the economic impact involved, as well as the fact that, at least from their perspective, the debated matter is a logical consequence of the STF’s ruling on excluding ICMS from the calculation base of these contributions (Theme 69 of general repercussion – the “Thesis of the Century”).

Although the matter began to be judged in August 2021, via the virtual plenary, after reaching a 4-4 tie, Minister Fux requested a highlight for judgment in the physical Plenary, which was scheduled for yesterday.

As a result, during the session held yesterday, the votes of the retired ministers, all in favor of the taxpayers, were counted. These included the former rapporteur, Minister Celso de Mello, followed by Ministers Ricardo Lewandowski and Rosa Weber.

In this context, Minister André Mendonça joined this line of reasoning with a vote that could be decisive for the taxpayers. On that occasion, the Minister argued for applying the same conclusions adopted in the “Thesis of the Century” ruling to the ISS case, in order to maintain the STF’s internal coherence and jurisprudential integrity.

Regarding the effects of the decision, the Minister supported the modulation of effects, although the criteria, as only briefly mentioned in the ruling, seem obscure and will need to be elaborated upon in the publication of the respective vote, should his opinion prevail.

On the other hand, Minister Dias Toffoli, who initiated the dissent and was accompanied in the previous virtual session by Ministers Alexandre de Moraes, Edson Fachin, and Luís Roberto Barroso, argued for maintaining the incidence of PIS and COFINS on ISS amounts.

According to these Ministers, the ISS collection technique differs from that applied to ICMS, which is subject to the non-cumulative system. For this reason, ICMS has accounting implications for the next link in the economic chain due to legal imposition, which does not occur with ISS.

In Toffoli’s words, “with ICMS, due to non-cumulativity, there is a credit resulting from the entry of goods into the establishment. When it is sold, the debit arises, with the tax amount highlighted on the sales invoice […] With ISS, however, there is no such collection technique, which is specific to ICMS. The municipal tax is not subject to non-cumulativity.”

In yesterday’s session, Minister Toffoli pointed out that the argument that the amount corresponding to ISS embedded in the price does not integrate the provider’s assets, as it will serve to pay this tax (thus being transferred to the municipality), constitutes an economic interpretation of the context, which cannot be admitted in light of legal interpretation.

In favor of the tax authorities’ thesis, Minister Gilmar Mendes reiterated his position in yesterday’s session. In summary, his arguments were based on budgetary concerns, especially the impact on public finances with the proposed exclusion.

From this scenario, if Minister Cármen Lúcia maintains her vote presented in the virtual plenary (favorable to taxpayers), and Ministers Alexandre de Moraes, Luís Roberto Barroso, and Edson Fachin do not change their previous votes (favorable to the Union), the deciding vote will likely fall to Minister Luiz Fux, who had not voted in the virtual judgment.

It is worth recalling that during the ruling on Theme 69 of general repercussion, Minister Fux sided with the taxpayers’ thesis, raising the expectation that he may adopt the same position when the discussion on the inclusion of ISS in the PIS and COFINS calculation base resumes.

Given that the judgment was not concluded, there remains the possibility for taxpayers to pursue judicial discussion, particularly to protect themselves from possible modulation of effects by the STF, as well as considering the likelihood that Minister Fux will maintain the position previously adopted in the ICMS-related ruling, favoring taxpayers.

The Tax Law Department of Marins Bertoldi Advogados remains attentive to developments on this issue and is available to clarify any doubts on the topic and explore it within each business context.

By Enrique Grimberg Kohane