Last Thursday, 09/24, Complementary Law 175/2020 was published in the DOU and came into force, which changes the rule of jurisdiction for charging ISS on certain activities, which are now required by the municipality in which the service recipient is headquartered and no longer by the municipality in which the provider is located.

The new standard complements the provisions of the Complementary Law 157/2016, which had already brought changes in relation to the jurisdiction for collecting ISS – and which is partially suspended by an injunction granted by the Federal Supreme Court (“STF”) in ADI 5835.

The Law also establishes a gradual transition rule, so that only from 2023 onwards the collection must be made in full in favor of the municipality where the service recipient is located, and in the meantime, it must be shared as follows:

Although the transition rule is beneficial to municipalities, as it allows them to plan for potential revenue losses resulting from the new legislation, the same cannot be said for taxpayers who, for two years, will be subject to inspection by two municipalities regarding the same taxable events.

It is also worth highlighting that the services that will have their tax collection and collection changed are: (i) health and veterinary plans; (ii) administration of funds, consortia, credit and debit cards, customer portfolios and post-dated checks; and (iii) commercial leasing.

It is possible to verify that the legislator was concerned with establishing some criteria regarding the figure of the service recipient. According to the wording of art. 14:

• In the case of health or medical plan services and similar services, the service recipient is the individual beneficiary linked to the operator through an individual, family, corporate group or group health plan agreement or contract. In cases where there are dependents linked to the plan holder, only the holder's domicile will be considered;
• In the case of credit or debit card administration services and similar services, provided directly to credit or debit card holders and similar services, the recipient is the first cardholder.
• In the case of securities portfolio management services and investment fund and club administration and management services, the recipient is the shareholder;
• In the case of consortium administration services, the service recipient is the consortium member;
• In the case of leasing services, the service recipient is the lessee.

It is important to highlight another relevant change promoted by Complementary Law 175/2020: in relation to the services affected by it, the taxpayer must calculate and declare the ISS through a standard electronic system, unified throughout the national territory, developed by the taxpayer himself, individually or together with others also subject to the new law, and it will be the responsibility of the ISSQN Accessory Obligations Management Committee (“CGOA”), created by the new Complementary Law, to define the standards and layouts that must be observed.

This innovation is of utmost importance for the viability of implementing the displacement of the active subject of the ISS in relation to activities whose range of borrowers is widely distributed, such as card administrators and health plan companies, which usually have a public reach in practically the entire national territory.

In a statement, the Brazilian Federation of Banks (“Febraban”) stated that it is working on adjustments to comply with the new law and stated that “the place where taxes on services are collected is a political and institutional choice that must be respected”.

Our tax team remains available for any questions regarding the developments and application of Complementary Law 175/2020.