The Rio de Janeiro Court of Justice has authorized an information technology company to exclude its own municipal tax, PIS and Cofins from the calculation of the ISS. This is the first decision in the state to prohibit the so-called internal calculation – that is, the inclusion of the ISS in its own base.
To justify the injunction, Judge Katia Cristina Nascentes Torres, head of the 12th Public Finance Court, used the understanding of the Federal Supreme Court (STF) that excluded ICMS from the calculation of PIS and Cofins. “The adopted grounds must be applied to justify the exclusion of the amount due as ISS, PIS and Cofins from the ISS calculation basis,” she states in the decision.
According to lawyer Rubens de Souza, from the law firm WFaria Advogados, clients' support for this theory was not strong because the amounts to be recovered for the overpayment of ISS are converted into court orders. And the payment of these bonds, he adds, has been subject to successive extensions. Recently, Constitutional Amendment 109/2021 authorized states and municipalities to pay the debts until 2029.
“With the pandemic, the scenario has changed due to companies’ need for cash relief. The greatest benefit of this type of decision is for the future,” says Souza, who represents the company benefiting from the injunction. With the court order, the company will no longer be able to include 5% of ISS and 9.25% of PIS/Cofins in the amount to be collected.
The discussion about the calculation of the ISS involves defining what makes up the price of the service, which is the basis for the tax. There is a school of thought that argues that the taxable amount includes the value of the invoice, including tax costs. Another school of thought suggests that the basis is the price billable by the provider, which does not include third-party revenues, such as taxes.
For Judge Katia Cristina Nascentes Torres, who granted the injunction, the price represents the revenue obtained in return for the service performed. “Therefore, the expansion of the understanding established for the municipal tax is a measure that is necessary for the fair collection of the tax”, she says (case number 0069739-23.2021.8.19.0001).
Until then, the only precedent in favor of excluding the ISS from its own calculation basis was from the Court of Justice of São Paulo (TJ-SP), in a decision issued in 2011. At the time, the judges ruled out the application of a municipal law of Campinas that determined the inclusion of the ISS in the amount to be collected for the tax. They considered the requirement unreasonable since the tax legislation does not provide for the so-called “internal calculation” (case no. 9112187-90.2003.8.26.0000).
Rubens de Souza believes that the lack of authorization for the internal calculation in Complementary Law No. 116/2003, which regulates the ISS, is yet another argument for reducing the tax base. Complementary Law No. 87/1996 (Kandir Law), for example, expressly provides that the ICMS composes its own calculation base. The STF has already ruled that the requirement is constitutional. “This allegation should be taken into account in the ruling,” he says.
The reasoning applied to the ISS case is similar, but not exactly the same, to the dispute over the inclusion of ICMS in the PIS/Cofins tax base, according to lawyers. “An analogy was made with the reasoning of the STF decision,” says lawyer Alaíde Linhares Carlos, from RMS Advogados.
For attorney Geraldo Wetzel Neto, partner at Bornholdt Advogados, the STF's understanding can be used as a basis, but he points out that the Court itself has already approved the calculation within the ICMS. “Will the STF say the same for the ISS or will financial availability prevail?” he asks.
The debate on the inclusion of ISS in the tax base itself can also be framed in the context of a tax war between municipalities. Article 8 of LC 116 sets the minimum ISS rate at 2%. In the sole paragraph, it prohibits reductions in the tax base, which is the practical effect of excluding taxes from the calculation of the municipal tax.
“Municipalities have already questioned legislation from other entities because they believe that this would be a way to disguise the reduction in the amount to be paid. Therefore, there is no alternative for the taxpayer other than to go to court to discuss the concept of the price of the service”, says lawyer Daniel Corrêa Szelbracikowski, partner at Advocacia Dias de Souza.
In a statement, the Rio de Janeiro city prosecutor's office said it was still analyzing the decision.