The import of services into Brazil is subject to several taxes, and a significant part of the tax burden arises from the Social Contributions on the imports of goods and services (PIS/COFINS-Import), calculated at a total 9.25% rate over the total amount paid, credited or remitted abroad as compensation for the provision of services, plus the municipal service tax (ISS) amounts and the contributions themselves.
Several controversies regarding the taxable basis of such contributions arose, because the Brazilian Federal Constitution provides that social contributions on imports that have an ad valorem tax rate should be calculated based solely on the customs value.
To this effect, although the customs value concept arises from the GATT Customs Valuation Code and applies to goods, the Federal Supreme Court (STF) understood that its general concept must also apply to services. Accordingly, as the customs valuation is primarily based on the transaction value, without the inclusion of domestic taxes levied on the import, the ISS and the Contributions themselves could not be added to the service price for the calculation of the PIS/COFINS-Import taxable basis.
Such understanding arose from a leading case of the STF in which the constitutionality of the taxable basis of the PIS/COFINS-Import on the import of goods was evaluated. In the case, the taxable basis was legally defined as the customs value plus the State VAT (ICMS) amounts the contributions themselves; as a result, the STF understood that, as the GATT Customs Valuation Code did not provide for the inclusion of local taxes in the customs value, the inclusion of the ICMS and the contributions amount would surpass the provisions of the Federal Constitution.
Based on this, the STF has applied the same understanding on the import of services; thus, the inclusion of the ISS and contributions amounts in the PIS/COFINS-Import taxable basis is unconstitutional.
Therefore, based on STF’s understandings, Brazilian government, by means of the National Treasury Attorney-General’s Office (PGFN), issued a legal opinion on 25 August 2022, recognizing the taxpayers’ right to not include the ISS in the taxable basis of the contribution on the import of services and to include this understanding on PGFN’s waiver list – meaning that, from this date forward, tax authorities should neither contest ongoing proceedings nor issue new tax assessments notices regarding this matter.
Although such stance is well received by taxpayers, it should be noted that the PGFN did not mention the non-inclusion of the amount of the PIS/COFINS-Import in their own taxable basis, even though the grounds for such are the same as regards the ISS.
In view the above, although the PGFN took an important step in preventing further controversies, some discussions might still take place. In the end, an opportunity was missed to reduce the tax burden on the import of services.
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