On November 10, 2016 Normative Ruling SF No. 04/2016 was published in São Paulo's Official Municipal Gazette, representing a substantive change in the Municipal Tax Authorities' stance regarding the definition of "result" for the purposes of the ISS tax non-levy on the export of services.
The new ruling expressly revoked Normative Ruling SF No. 02/2016, published earlier this year, which stated that the term "result" should be interpreted as the performance of the service itself, regardless of the location where the benefits or consequences connected to such activities are enjoyed or verified.
According to the new ruling, clearly more favourable to taxpayers than the previous one, a service rendered by a provider located in the City of São Paulo will be considered an export when the person, the material or immaterial element, or the economic interest related to the service are located abroad. Although this is more in line with Complementary Law No. 116/2003,the law of general rules regarding ISS, the concepts of "material element", "immaterial element" and "economic interest" should still give rise to controversies between taxpayers and the municipal authorities.
The situations below, however, prevent the characterization of export of services:
- for services included in item 1 of the services list – "IT services and similar services", if the system, software, database or equipment are linked to a person located in Brazil;
- for services included in item 2 of the services list – "research and development services of any kind", if the base being researched is located within Brazilian territory;
- for services included in items 10 and 17 of the services list – "intermediation services and similar services" and "technical, administrative, legal, accounting, commercial services and similar services", if one of the parties being intermediated, the respective assets, or the economic interests are located in Brazil;
- for services included in sub-item 15.01 of the services list – "management of any funds, consortiums, credit or debt cards and similar services, management of client portfolio, of post-dated checks and similar services", if there is any investment or acquisition in the domestic market.
It will be up to the taxpayer to prove that a given provision qualifies as export of service as defined in the ruling and that none of their services are listed in the exceptions above.
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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.