{"id":94594,"date":"2025-06-16T21:07:13","date_gmt":"2025-06-17T00:07:13","guid":{"rendered":"https:\/\/murray.adv.br\/?p=94594"},"modified":"2025-06-16T21:07:13","modified_gmt":"2025-06-17T00:07:13","slug":"brazil-risks-new-multibillion-tax-loss-as-companies-gain-in-court","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/brazil-risks-new-multibillion-tax-loss-as-companies-gain-in-court\/","title":{"rendered":"Brazil risks new multibillion tax loss as companies gain in court"},"content":{"rendered":"
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Firms win right to exclude service tax from social contribution base in 75% of appellate rulings; Supreme Court decision still pending<\/em><\/strong><\/h6>\n<\/div>\n<\/div>\n
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06\/16\/2025\u00a0<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n

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Eight years after losing what became known as the \u201ccase of the century\u201d in Brazil\u2019s tax litigation history, the federal government now faces another potentially costly defeat. This time, companies are seeking to exclude the municipal services tax (ISS) from the calculation base of two federal social contributions\u2014PIS (Social Integration Program) and Cofins (Contribution for the Financing of Social Security)\u2014in a legal argument that stems from the earlier ICMS (state-level value-added tax) exclusion case. Taxpayers have the advantage in federal appellate courts and are well-positioned to win in the Supreme Court (STF).<\/p>\n<\/div>\n

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The current tally in Brazil\u2019s highest court signals a likely loss for the government. Both the STF\u2019s Virtual Plenary and lower court rulings mirror the dominance of favorable rulings for companies. Between January 2024 and January 2025, 75% of 602 decisions from regional federal courts ordered the removal of ISS from the tax base, according to a survey by law firm Velloza Advogados.<\/p>\n<\/div>\n

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The case, listed as Theme 118, resembles the ICMS case and remains pending in the Supreme Court. A defeat could deal a R$35.4 billion blow to public finances, based on figures from the 2025 Budget Guidelines Law, at a time when the federal government is pushing to increase revenue and eliminate the primary deficit.<\/p>\n<\/div>\n

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The STF began reviewing the case in 2020, but the trial was suspended in August 2023. The outcome is critical for defining the constitutional concept of gross revenue. In some earlier rulings on related cases, the Supreme Court classified taxes as part of corporate revenue. However, with Brazil\u2019s new tax reform introducing a dual VAT system, taxes will be levied separately\u2014clarifying that they do not constitute revenue for companies.<\/p>\n<\/div>\n

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Appeal rulings<\/strong><\/p>\n<\/div>\n

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Velloza Advogados analyzed appeal rulings from Brazil\u2019s six federal appellate courts. All decisions from TRF-1, TRF-2, and TRF-3\u2014which handle most of the lawsuits\u2014favored the taxpayers, applying the same rationale used in the ICMS exclusion case (Theme 69).<\/p>\n<\/div>\n

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TRF-4, based in Southern Brazil, diverged. Of its 119 decisions, all went against the companies. TRF-5 issued mixed rulings but mostly sided with businesses, agreeing that the ISS does not constitute revenue and should therefore not be included in the PIS\/Cofins tax base. TRF-6, based in Minas Gerais, opted to suspend proceedings until the Supreme Court rules\u2014even though a formal stay has not been ordered.<\/p>\n<\/div>\n

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So far, the STF\u2019s physical plenary shows a score of four votes against the federal government and two in its favor. Five justices have yet to cast their votes, but tax lawyers expect a victory for taxpayers. Optimism stems from Justice Andr\u00e9 Mendon\u00e7a, who had been a wildcard but voted in favor of the companies in 2024. Considering votes from both the Virtual Plenary\u2014previously split 4\u20134\u2014and those cast in the ICMS case, there would already be a majority in favor of businesses.<\/p>\n<\/div>\n

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Three justices have voted in this case so far: Dias Toffoli and Gilmar Mendes against the companies, and Justice Mendon\u00e7a in favor. Votes from retired justices Celso de Mello (the rapporteur), Rosa Weber, and Ricardo Lewandowski\u2014also in favor of taxpayers\u2014remain valid. As a result, current justices Nunes Marques, Fl\u00e1vio Dino, and Cristiano Zanin, who succeeded them, will not vote.<\/p>\n<\/div>\n

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Taking all these votes into account, there is currently a 5\u20135 tie. Only Justice Luiz Fux has yet to vote. Given his prior stance in the ICMS case, the expectation is that he will vote for the companies, securing their win.<\/p>\n<\/div>\n

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Lead case<\/strong><\/p>\n<\/div>\n

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The lead case involves Via\u00e7\u00e3o Alvorada, a bus operator in Porto Alegre, Rio Grande do Sul. Both the trial court and TRF-4 ruled against the company. Heron Charneski, lead attorney at Charneski Advogados, is representing Via\u00e7\u00e3o Alvorada at the Supreme Court. He said TRF-4\u2019s stance mirrors its position in the ICMS case.<\/p>\n<\/div>\n

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\u201cAfter the ICMS ruling, the court began following the STF\u2019s guidance. But since the ISS hasn\u2019t been ruled on, it reverted to its earlier jurisprudence,\u201d Mr. Charneski said. A ruling by the Supreme Court would help standardize decisions across appellate courts, especially important during the transition to Brazil\u2019s tax reform, under which the ISS will no longer be included in the base of the new Contribution on Goods and Services (CBS), which will replace PIS and Cofins.<\/p>\n<\/div>\n

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Mr. Charneski argued that the ISS exclusion case is not a derivative, but rather a \u201csister\u201d case to the ICMS one\u2014similar to another major issue, Theme 1037, which discusses excluding PIS and Cofins from their own tax bases. \u201cAll these cases depend on the definition of revenue, which determines whether PIS and Cofins are due. We’re looking for a consistent interpretation\u2014a single concept of revenue for both taxes,\u201d he said.<\/p>\n<\/div>\n

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Gross revenue definition<\/strong><\/p>\n<\/div>\n

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At the core of these cases is how to define gross revenue. \u201cIt\u2019s a concept that has haunted Brazil for a long time,\u201d said economist and tax lawyer Eduardo Fleury, founding partner of FCR Law. Many major rulings by the Supreme Court, he added, have included taxes to be remitted to the government within the definition of gross revenue. \u201cYou won\u2019t find this concept in the rest of the world,\u201d he said.<\/p>\n<\/div>\n

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Mr. Fleury warned that this is a \u201charmful path,\u201d especially now that Brazil has approved its tax reform and is adopting a split payment system. \u201cThe new system makes it clear that taxes are external to revenue and should be charged separately,\u201d he said. He noted that the ISS is similar to the U.S. sales tax, which is itemized separately. \u201cThe tax is charged on top of the product and clearly shown because it doesn\u2019t belong to the seller\u2014it\u2019s owed to the municipal government.\u201d<\/p>\n<\/div>\n

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Tax lawyer Fernanda Secco, a partner at Velloza Advogados, argued that since court rulings overwhelmingly favor taxpayers, there is no reason to restrict the impact of the ruling to future cases\u2014a proposal made by Justice Mendon\u00e7a. \u201cThere\u2019s no surprise here that would justify such limitation,\u201d she said.<\/p>\n<\/div>\n

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Mr. Mendon\u00e7a suggested that companies which didn\u2019t include ISS in their PIS\/Cofins tax base or whose amounts remain in escrow would not owe the tax. But for those who already paid over the years and whose tax credits have expired, there would be no retroactive recovery\u2014citing a \u201csocial interest\u201d in protecting the integrity of the budget cycle.<\/p>\n<\/div>\n

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Ms. Secco expressed concern over the proposal, saying it undermines legal certainty and equal treatment among businesses. \u201cCompanies that acted conservatively and chose not to benefit from favorable rulings and paid the tax would be barred from recovering what they paid,\u201d she said. \u201cThe proposal rewards those who didn\u2019t pay, which could even distort competition.\u201d<\/p>\n<\/div>\n

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The Attorney General of the National Treasury declined to comment.<\/p>\n

*By\u00a0Marcela Villar\u00a0\u2014 S\u00e3o Paulo<\/p>\n

Source: Valor International<\/p>\n

https:\/\/valorinternational.globo.com<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Firms win right to exclude service tax from social contribution base in 75% of appellate rulings; Supreme Court decision still pending     06\/16\/2025\u00a0 Eight years after losing what became known as the \u201ccase of the century\u201d in Brazil\u2019s tax litigation history, the federal government now faces another potentially costly defeat. This time, companies are […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[26183],"class_list":["post-94594","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-brazil-risks-new-multibillion-tax-loss"],"yoast_head":"\nBrazil risks new multibillion tax loss as companies gain in court - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/brazil-risks-new-multibillion-tax-loss-as-companies-gain-in-court\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brazil risks new multibillion tax loss as companies gain in court - Murray Advogados\" \/>\n<meta property=\"og:description\" content=\"Firms win right to exclude service tax from social contribution base in 75% of appellate rulings; Supreme Court decision still pending     06\/16\/2025\u00a0 Eight years after losing what became known as the \u201ccase of the century\u201d in Brazil\u2019s tax litigation history, the federal government now faces another potentially costly defeat. 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