Judge Rules in Favor of Construction Company on ISS Exclusion
A federal magistrate from the 8th Civil Court of the Federal District granted a construction firm’s request to remove the Municipal Service Tax (ISS) from the tax base used to calculate the Social Integration Program (PIS) and the Contribution for the Financing of Social Security (Cofins). The decision, handed down by Judge Márcio de França Moreira, follows a line of jurisprudence that has been solidified by the Supreme Federal Court under General Repercussion Theme 118.
Legal Reasoning Behind the Ruling
The judge emphasized that ISS does not constitute revenue or billing for the purposes of the contributions in question. He recalled that the Constitution’s article 195, I, b, defines the taxable base for PIS and Cofins as gross revenue or turnover—essentially the total income earned by a legal entity before any fiscal or accounting deductions. Because ISS is a tax levied on the provision of services, it does not increase the taxpayer’s net worth and therefore should not be included in that base.
Connection to the “Tese do Século” Precedent
The ruling draws an analogy to the landmark “Tese do Século” (Theme 69), in which the Supreme Court held that the Tax on the Circulation of Goods and Services (ICMS) also cannot be part of the PIS/Cofins calculation. By applying the same logic, the judge ordered the exclusion of ISS amounts that appear separately on invoices.
Context of Ongoing Tax Reform
The decision arrives at a time when Brazil’s tax landscape is undergoing significant changes. Effective 1 January 2027, PIS and Cofins will be abolished and replaced by the Contributions on Goods and Services (CBS). Meanwhile, the Municipal Service Tax (ISS) will be phased out gradually, with reductions starting in 2029 and complete disappearance by 2033, giving way to the new Goods and Services Tax (IBS).
Practical Impact for Businesses
For companies that provide services and have historically included ISS in their PIS/Cofins calculations, this judgment offers immediate relief. It allows them to reassess their contribution liabilities, potentially resulting in lower payments and improved cash flow. Moreover, the ruling provides clarity ahead of the broader tax reforms, helping firms align their compliance strategies with both current law and future regimes.
Who Represented the Taxpayer?
The construction company was advised by attorney Felipe Bayma, who argued that the ISS should be excluded from the concept of billing referenced in the constitutional provision.
Access to the Full Decision
The complete judgment can be reviewed at the following link: https://conjur.com.br/wp-content/uploads/2026/10/Sent_JFDF_ISS_Municipal.pdf. The case number is 1010453-46.2026.4.01.3400.
Perguntas Frequentes
What is ISS and why is its exclusion important?
ISS stands for Municipal Service Tax, a tax levied on the provision of services. Excluding it from PIS and Cofins calculations means service providers will not have this tax counted as part of their gross revenue for contribution purposes, potentially reducing their tax burden.
How does this ruling relate to the Supreme Court’s Theme 118?
Theme 118 is the Supreme Court’s general repercussion ruling that confirms ISS should not be included in the PIS and Cofins tax bases. The federal judge’s decision follows that precedent, reinforcing its binding effect.
What is the "Tese do Século" and how does it influence this case?
The “Tese do Século” (Century Thesis, Theme 69) established that ICMS should also be excluded from PIS/Cofins calculations because it does not increase a taxpayer’s net worth. The judge applied the same logic to ISS, extending the principle to service taxes.
When will PIS and Cofins be replaced by CBS?
PIS and Cofins will be abolished and replaced by the Contributions on Goods and Services (CBS) starting 1 January 2027.
What is the timeline for ISS to transition to IBS?
The transition from ISS to the new Goods and Services Tax (IBS) will be gradual: reductions begin in 2029, with full elimination scheduled for 2033.
Who represented the construction company in this case?
Attorney Felipe Bayma acted on behalf of the taxpayer, arguing for the exclusion of ISS from the PIS/Cofins base.
How might this decision affect other businesses?
Any company that provides services and has historically included ISS in its PIS/Cofins calculations can benefit from reduced contribution liabilities and clearer compliance guidance moving forward.