On the 4th of November, the Federal Supreme Court (STF) started a review of the taxation model on software licensing. Six of the nine ministers formed a majority with regards to the ISS levy, both for the so-called off-the-shelf software, sold in the retail market, and for custom-made software.
If maintained, the new understanding modifies the jurisprudence, established in 1998, which defined cases of ICMS for operations involving off-the-shelf software and ISS for the order-based modality.
Maikon Luiz, general manager of Dummond Advisors, commented on the judgment “If the STF’s understanding of non-taxation of ICMS is confirmed in the case of non-customizable software licensing, we will have a stable legal environment for companies that license this type of software, since, today, many of them still have doubts on the topic. In addition, the problem is that states and municipalities are fighting a tax battle. Often, both want to tax both the ICMS and the ISS on the same type of activity. Which is not unconstitutional, since they have different tax natures in these two taxes.”
The ICMS is a state tax and levied on goods, while the ISS is collected by the municipalities and is levied on services. This new understanding tends to be more advantageous for technology companies, since the ISS rate may be lower than that of ICMS.
The final judgement on this topic would have taken place on Wednesday, the 11th of November, but has been postponed again.