As previously disclosed in our blog, Complementary Law 175/2020 was recently enacted, which seeks to change the jurisdiction for collecting ISS on activities of (i) health and veterinary plans; (ii) administration of funds, consortia, credit and debit cards, customer portfolios and post-dated checks; and (iii) leasing, changing the active subjection to the municipality in which the borrower is established.
On that occasion, we pointed out that this is not the first time that there has been an attempt to change the tax capacity of the municipal tax, which, in 2016, was attempted through LC 157.
Said LC was the subject of ADI No. 5835, reported by Minister Alexandre de Morais, who provisionally suspended part of its effectiveness – precisely with regard to the transfer of active subjection from the municipality of the service provider to the municipality of the service recipient – on the grounds that “This change would require that the new regulatory discipline clearly define the concept of 'service recipient', under penalty of serious legal uncertainty and the possible possibility of double taxation or even the absence of correct tax incidence”.
The new legislation, despite establishing a situation similar to that established – and challenged via ADI – by LC 157, ended up taking greater care in seeking the operational viability of changing the active subject of the activities related therein, through the establishment of a unified electronic system for collecting the ISS (which, at least in theory, would make it feasible for companies that develop extremely widespread services to collect the ISS in numerous municipalities).
However, such measures have proven insufficient to ensure the effectiveness of the aforementioned provision, especially while the ISSQN Additional Obligations Management Committee (CGOA) is not effectively implemented and the tools necessary to standardize and universalize the procedure and environment for calculating and collecting ISS are not developed for multiple municipalities.
In addition to this fact, the high degree of intersection between the matters addressed in LC 157/2016 and LC 175/2020 is striking, which, in the reading of the National Confederation of the Financial System (CONSIF) and the National Confederation of Insurers (CNSeg), should imply the extension of the effects of the precautionary relief granted in ADI 5835 to the new law as well.
The aforementioned entities expressed their views in the records of the aforementioned ADI, arguing that LC 175/2020 did not completely eliminate the uncertainties and insecurities arising from the intended change in the active subjection of the ISS, and that its effects should be extended to the new regulatory instrument.
In contrast, the National Confederation of Municipalities (CNM) requested the revocation of the precautionary measure, as it believes that there are no reasons for its maintenance, since the implementation of the CGOA and the unification of the ISS payment environment would have, supposedly, resolved the insecurities and uncertainties that gave rise to LC 157/16.
In our view, CNM's claims will only make sense if – and when – the CGOA and the unified standard electronic system are truly implemented and made available to taxpayers, this being a condition sine qua non of effectiveness of LC 175/2020.
The expectation is that Min. Alexandre de Moraes will call the process to a conclusion and make a statement on the matter in the coming weeks.
Our tax team remains available for any questions regarding the developments and application of Complementary Law 175/2020.
