29 April 2016
On April 27, 2016 Normative Ruling SF No. 02/2016 was published in the São Paulo Municipality´s Official Gazette, where it was stated that the Municipal Tax Authorities had changed its stance regarding the definition of “result” for the purposes of the ISS tax levy on the export of services.
Both Complementary Law No. 116/2003 – the law of general rules regarding ISS – and Municipal Law No. 13,701/2003 determine the levy of an ISS tax on services developed in Brazil whose results are therein verified, even if the payment is made by a non-resident company, without, however, defining the term "result".
With the purpose of clarifying the divergences related to this subject, the normative ruling establishes that the term “result” must be interpreted as the performance of the service itself, “being irrelevant the fact that any benefits or consequences connected to such activities are enjoyed or verified abroad or by a non- resident abroad." Thus, for the Treasury Department of the City of São Paulo, the result would occur in Brazil when the activity described in the list of services is carried out in the country.
Therefore, the normative ruling does not consider the simple delivery of the product resulting from a service as an export of services, such as reports and communications, as well as proceedings provided abroad that are not characterized as an actual supply of services in the foreign territory.
Considering that the normative ruling has an interpretative essence, its effects are retroactive and its effects reach even the Formal Consultations issued before the normative ruling came into force.
In this context, it is important to stress that although the subject remains undefined before the Brazilian Superior Courts, both the Municipal Tax Council of São Paulo and the Judicial Court of the State of São Paulo have been providing favorable decisions to taxpayers by interpreting the concept of "result" in diametrically different directions in comparison with the Normative Ruling, which has been understood as the utility/enjoyment of the service; which is verified at the location of their economic advantage.
Although the Municipal Tax Council of São Paulo can be influenced by the understanding provided by the Treasury Department of the City of São Paulo in this normative ruling, its decisions are independent from the ruling issued by the Municipal Tax Authorities.
In short, we believe there are strong grounds to defend any ISS tax levy based on the definition of “result” established in this normative ruling.