Bank wins city tax ruling on software, services

A Brazilian financial institution has won a preliminary court order ending payment of the ISS municipal services tax on imported services and software licenses in the city of São Paulo, lawyers at local firm Mattos Filho told BNamericas. The São Paulo city government collects the ISS tax, which currently stands at 2% for software licenses and 5% for services. If the ruling is upheld savings for large companies could be into the millions of reais, according to the lawyers. The São Paulo court agreed with the plaintiffs argument that any software licenses, whether by a Brazilian company or from abroad, cannot be considered a service, because the software firm is allowing companies to use their products, Bueno said. It also ruled that services completely fulfilled outside the city's geographical limits cannot be taxed in the city of São Paulo, Bueno said. However, if any part of the service is carried out in the city, including installation or maintenance, then the service would be face the ISS tax, Mifano said. The decision is only applicable to the institution involved, although other firms could always seek similar court rulings, said Mattos Filho partner Maria Isabel Bueno. As this is the first such injunction against a new piece of legislation, many other companies are likely to follow. "We expect that many other companies, in the same situation, will seek court injunctions, to avoid paying tax on services rendered outside the country, likewise software licenses," Mattos Filho associate Flavio Mifano said. The São Paulo city government is now likely to appeal the decision, and the case is likely to end up in the supreme court, Bueno said, adding that a final decision could take five or six years. The federal government has said it will not participate in the case.