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  • 7 June 2023

Federal Supreme Court decides for the unconstitutionality of a complementary law that changed the ISS collection system for payment methods, health plans and leasing sectors, among others

The Brazilian Supreme Court (“STF”) finished on June 02, 2023 the judgement of the Direct Unconstitutionality Action No. 5,835 (“ADI 5,835”), which challenged the constitutionality of Complementary Law No. 157/2016 (“CL 157”) which introduced rules that intended to change the jurisdiction to collect Service Tax (“ISS”) from the place where the service renderer is located to the place where the “service taker” is located upon certain types of services, including management of credit and debit cards, health insurance services and leasing services.

With the STF decision, the ISS upon such services will continue to be due to the Municipality where the service renderer is located.

The majority of the Justices of the STF (8 x 2) followed the vote of the rapporteur Justice Alexandre de Moraes to declare the unconstitutionality of article 1 of CL 157 and the corresponding articles of Complementary Law No. 175/2020 (“CL 175”), which further regulated the changes introduced by the CL 157.

The main arguments considered by STF were the following: (i) CL 157 did not provide a clear definition of “service taker”, which resulted in legal uncertainty and may trigger conflicts between municipalities; and (ii) although CL 175 defined the concept of “service taker” and created the CGOA (committee responsible for establishing the mechanics and ancillary obligations related to the collection of the ISS), these provisions not only did not remedy all inconsistencies and gaps of CL 157, but also do not have the power to correct the original issues of CL 157.

This final decision rendered by STF confirmed the preliminary injunction granted on March 23, 2018, by the rapporteur Justice Alexandre de Moraes, which suspended the effectiveness of the provisions of CL 157 up until now.

The practical effect of the outcome of the case is that new ISS collection system provided for in CL 157 and CL 175 will no longer apply.

As a rule, the decision issued in an ADI is unappealable – except for the possibility of the parties filing a Motion for Clarification, which is a petition by means of which the court is requested to provide further clarification to the decision, but unlikely changes the outcome of the decision.

Lefosse’s Tax Team closely monitors the changes that impact the Brazilian market and the national tax system. For further clarification on the subject, or others that may be of interest to you, please contact our team.



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