Brazil: Tax Thesis - Exclusion Of ICMS And ISSQN From The Tax Basis Of The Social Security Contribution On Gross Income – Law No. 12,546/2011

Within the Program "Brasil Maior" (Greater Brazil), Law no. 12,546/2011 created the Social Security Contribution on Gross Income which, until Dec. 31, 2014, and for some economic sectors, will replace the Social Security Contributions provided for in items I and III of article 22 of Law no. 8,2 12/91, calculated, in turn, on the total remuneration paid, due, or credited to ensured employees, autonomous workers, and individual taxpayers.

In this context, Normative Rule of the Federal Revenue of Brazil (RFB) no. 3, of November 31, 2012, through which the RFB stated that the tax basis of the new Social Security Contribution is to follow the technical concept of "gross revenue" applicable to the PIS and COFINS, understood as the "revenue deriving from the sale of goods in own-account transactions; revenue deriving from the rendering of services in general; and the results earned in "third-party account" transactions".

Due to this position of the Treasury, we believe it is legally possible to seek the exclusion of the ICMS (State Goods and Service Tax) and ISSQN (Service Tax) from the basis of the Social Security Contribution on the Gross Revenue, since those amounts are mere accounting entries of the taxpayers and do not incorporate their net worth definitively, being in fact revenues of the State, Federal District, and Municipalities.

It is worth noting that the discussion about the inclusion of the ICMS into the PIS/COFINS' basis (whose terms apply to the ISSQN) started at the Federal Supreme Court (STF), with six votes favorable to the taxpayers and one against them in the records of Extraordinary Appeal (RE) no. 240.785. However, the issue is to be settled in ADC (Action for the Declaration of Constitutionality) no. 18, the general repercussion of the matter having been recognized in RE no. 574.706, and the conclusions to be adopted in those leading cases must also apply to the Social Security Contribution on the Gross Revenue.

Therefore, we believe the filing of a judicial measure seeking to ensure the exclusion of the ICMS and ISSQN from the tax basis of the Social Security Contribution on the Gross Revenue applies to the case, as well as the recovery of amounts unduly paid in that regard since the date the new tax came into force.

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