The Brazilian Supreme Court (STF) may rule next Wednesday on a topic that, at a glance, could even be confused with the well-known thesis of the century: the inclusion of ISS in the calculation basis for PIS and Cofins. Despite the apparent similarity with the 2017 precedent, however, the victory of taxpayers is not certain. Among the ministers, the position should be raised that, due to the differences between ISS and ICMS, the municipal tax can be included in the calculation basis for federal taxes.
This understanding is obviously contested by taxpayers, who point out that the Supreme Court's failure to apply the thesis of the century would generate legal uncertainty. For some tax experts, the two issues are so similar that the case scheduled for this week would not be a “child thesis”, but rather a “sister thesis” of the thesis of the century.
A defeat for the Union in the process, according to the government, would generate billions in repercussions for the public coffers. According to data from the 2025 Budget Guidelines Bill (PLDO), the situation would have an impact of R$15T 35.4 billion over five years. The estimate, however, is questioned by companies and seen as overestimated.
André Mendonça as the scales' keeper
Scheduled for August 28, RE 592616 began to be analyzed in 2020, through the virtual plenary of the STF. In October 2021, the last time the case was scheduled, the Court had 10 ministers, and, given the current situation, the process could end in a tie of five votes to five.
At that time, the rapporteur was accompanied by former Minister Celso de Mello, Minister Cármen Lúcia and former Ministers Rosa Weber and Ricardo Lewandowski. For the rapporteur, the ISS cannot be considered revenue or income, as it is a “financial income that merely passes through the taxpayer’s assets and accounting records”. Furthermore, the judge emphasized in his vote that, in relation to the possibility of inclusion in the PIS and Cofins basis, the ICMS and the ISS are comparable.
On the other hand, Justices Alexandre de Moraes, Edson Fachin and Luís Roberto Barroso voted in agreement with the dissenting opinion expressed by Justice Dias Toffoli. For Toffoli, ICMS and ISS follow different collection regimes, among other reasons because the municipal tax is cumulative and is not highlighted on the invoice. Therefore, it would be possible to include ISS in the PIS and Cofins tax bases.
Following the positions of the thesis of the century (RE 574,706, through which the STF established Theme 69 and defined that ICMS is part of the PIS/Cofins basis), Minister Gilmar Mendes would tend to vote in favor of the Treasury, while Minister Luiz Fux would position himself in favor of taxpayers. The possible tie led Fux to request that the case be highlighted in 2021, which would take the issue to the physical plenary, with the score at zero.
In May the highlight was canceled, but the case was still included in the physical plenary session on August 28. RE 592616 is the last item on the agenda, but the 29th is “empty”, being focused on analyzing the remaining processes from the 28th.
With the resumption of the trial, the votes of the retired justices should be maintained. Thus, the position of the rapporteur and former justices Rosa Weber and Ricardo Lewandowski, in favor of taxpayers, should remain, and justices Nunes Marques, Cristiano Zanin and Flávio Dino, who replaced the judges, should not vote. The other justices may choose to maintain or change their votes.
If the votes previously cast are upheld and Justices Gilmar Mendes and Luiz Fux adopt the position of the century, the resolution of the matter will be in the hands of Justice André Mendonça. Sources close to the case consider it difficult to estimate how the judge will vote. This is because, while he tends to prioritize the court's case law, it is not possible to ignore the fact that he has previously held the position of Attorney General of the Union.
Cubs or sisters?
After all, are ISS and ICMS so distinct that the precedent relating to the second cannot be applied to the case involving the first tax?
According to attorney Paulo Mendes, from the Office of the Attorney General of the National Treasury (PGFN), the two taxes are subject to different regimes and, unlike the ICMS, the ISS does not represent a mere addition to the taxpayer's accounting records, but rather a cost to the company. Thus, the municipal tax can be included in the PIS and Cofins tax bases.
“The entire Brazilian tax system was structured under this premise, that taxes are also costs for companies, and therefore would be included in the idea of revenue,” says Mendes.
Taxpayer representatives who are involved in the case, however, have a different position. Attorney Breno Vasconcelos, who represents the National Confederation of Health, Hospitals, Establishments and Services (CNSaúde) in the lawsuit, argues that the distinction made by Toffoli between ISS and ICMS is undue. Among other arguments, Vasconcelos points out that, contrary to what the minister argued, ISS is highlighted on the invoice, and its economic impact is also passed on to the end consumer.
Furthermore, for the lawyer, the cumulative nature of the ISS is “absolutely irrelevant” to the discussion brought before the STF. “We are not talking about ICMS or ISS. We are talking about PIS and Cofins”, he states. CNSaúde acts as amicus curiae in the RE.
Lawyer Heron Charneski, founding partner of Charneski Advogados, who is representing the party in the leading case, points out that different understandings in the cases of ISS and ICMS can generate competition problems. He cites as an example the company listed as a party in the RE, Viação Alvorada LTDA, which is subject to ISS for transporting passengers within the municipality of Alvorada (RS). On the other hand, companies that travel between different municipalities are subject to ICMS, since intercity passenger transport is subject to the state tax.
For Charneski, the thesis of the century and the process scheduled for the 28th are so similar that the latter should not be considered a daughter thesis of Theme 69, but rather a sister thesis.
Finally, taxpayers question the amount estimated by the IRS in the event of defeat in the case. In an opinion added to the records, technology associations, which also act as amicus curiae, claim that a defeat by the Union in the RE would generate a loss of R$1.5 billion in PIS/Cofins revenue, which represents a reduction of R$0.771.4 billion in the total collected in contributions.
Source: https://jota.pro/tributos/10147