On Wednesday, February 24, the Full Bench of the Federal Supreme Court ("STF") defined the temporal effects of the decision handed down last week, on February 18, determining that ISS (Tax on Services of Any Nature), a tax owed to the Municipalities, is levied on transactions with software; and not ICMS (Tax on Transactions involving the Circulation of Goods), a tax owed to the States.
This is the joint trial of two Direct Actions of Unconstitutionality ("ADI"), ADI no. 5659 and ADI no. 1945, filed, respectively, by the National Services Confederation - CNS against a Decree of the State of Minas Gerais and by the Brazilian Democratic Movement (MDB) against a Law of the State of Mato Grosso, both rules seeking the collection of ICMS on software transactions. The STF decision that rules out the application of the ICMS and determines the assessment of ISS has broad application, reaching, for instance, customized software, non-customized software, custom-made software and licenses of use.
The definition by the STF as to the temporal effects of its decision on the levy of ISS on software transactions (known as modulation of the effects of the decision) applies to eight different situations, namely:
- Taxpayer that paid ISS: shall continue to pay ISS as of the publication of the STF decision and may not be charged for ICMS neither for the future nor for the past;
- Taxpayer that paid ICMS: shall pay ISS as of the publication of the STF decision and may not be charged for ISS nor refund past ICMS;
- Taxpayer that did not pay ISS and neither ICMS: should pay ISS as of the publication of the STF decision, being considered also due the ISS for the past, respecting the statute of limitations and the legislation in force at the time in the respective Municipality;
- Taxpayer that paid ISS and ICMS: shall pay only ISS as of the publication of the STF decision, and the validity of the collection of both ISS and ICMS paid in the past will be recognized, and the ICMS may be refunded through an action for refund of undue payment, subject to the statute of limitations;
- Taxpayer that filed a lawsuit on the matter against the States: the Courts are to apply the new position consolidated by the STF as to the application of ISS on software transactions in the ongoing lawsuits filed against the States;
- Taxpayers that filed a lawsuit on the matter against the Municipalities: the Courts are to apply the new position consolidated by the STF as to the application of ISS on software transactions in the ongoing lawsuits filed against the Municipalities, which may lead to a favorable outcome for the Municipalities;
- Legal disputes filed by the States against the Taxpayers for collection of ICMS: the ICMS collection lawsuits in which the States are the plaintiffs should be extinguished;
- Legal disputes filed by Municipalities against Taxpayers for collection of ISS: the ISS collection lawsuits in which Municipalities figure as plaintiffs may be granted, provided that there was no collection of ICMS by the Taxpayer.
BTLAW's Tax Planning and Consulting team is available to assist you with further information on this topic: [email protected]
