ICMS x ISS regarding software taxation: learn more about the retroactive effects of the STF decision

On Thursday, February 18th, the Federal Supreme Court (STF) concluded its judgment on the taxation model regarding software licensing. With a majority vote, the jurisprudence of more than two decades was changed to define that the Services Tax (ISS) will be levied on the licensing of software of any nature, making the differentiation between “off-the-shelf” software and custom-made software irrelevant.

In a session on February 24th, it was defined how the effects of the decision will be implemented, which will be valid from the date of publication of the judgment. Ministers restricted practically all possibilities for retroactive collection, setting 08 (eight) possible situations, which are:

• Taxpayers who only collected ISS: states will not be able to charge ICMS;
• Taxpayers who only collected the ICMS: municipalities will not be able to charge ISS and the taxpayer will not be entitled to a refund of the tax;
• Taxpayers who have not collected ICMS or ISS by the eve of the publication of the judgment: there will only be the possibility of collecting ISS;
• Taxpayers who collected ISS and ICMS, but did not file a claim for restoration of undue payments: there will be the possibility of refunding the ICMS, even if there is no action in progress, under penalty of unlawful enrichment by the states, and the validity of ISS payment;
• Pending lawsuits filed by taxpayers against states, including restoration of undue payments actions, in which the collection of ICMS is questioned: such actions should be judged according to the understanding signed by the STF that levies ISS and not ICMS. There will be the possibility of refund or release of amounts deposited under ICMS;
• Lawsuits, including tax liens, pending judgment filed by states seeking the collection of ICMS for events that occurred up to the eve of the date of publication of the record of judgment: such actions should be judged according to the understanding signed by the STF that applies to ISS and not ICMS on software;
• Lawsuits, including tax liens, pending judgment brought by municipalities intending on charging ISS for events that occurred up to the eve of the date of publication of the record of judgment: such actions must be judged according to the understanding signed by the Supreme Court that applies to ISS and ICMS on software unless the taxpayer has already collected ICMS;
• Pending lawsuits filed by taxpayers against municipalities discussing the incidence of ISS on software operations until the eve of the date of publication of the record of judgment: such actions should be judged according to the understanding signed by the STF that levies ISS and not ICMS on software, decided in favor for the municipalities, including income conversion of judicial deposits and attachment of assets and values.

The STF’s reasoning is considered advantageous for tech companies since the ISS tax rate in several states is lower than the ICMS tax rate.

Read the full article on the STF decision, click here