Supplementary Law nº 157/2016 (“LC No. 57/2016”), which was published on December 30, 2016, with very few vetoes, has introduced significant changes to the ISS collection system adopted by Brazilian Municipalities and the Federal District.
Such rule became effective on the date of its publication as a way to curb the fiscal war between municipalities by ratifying the minimum ISS rate (already in force since 2002), expanding the list of services subject to taxation by ISS, and changing the location where the tax is due with regard to specific services.
Among the main changes proposed by LC nº 157/2016, we highlight the following:
► The formalization in Supplementary Law of the minimum ISS rate of 2%, formely in force pursuant to article 88 of the Transitory Constitutional Provisions (inserted into the Brazilian legal system by Constitutional Amendment nº 37/2002), to avoid that Municipalities and the Federal District institute lower rates to attract new service providers, taking advantage of the general ISS collection rule that considers the location where service providers are established or, in the absence thereof, the location of their domicile, which insofar corporate entities are concerned, would be the address of their registered head offices;
► The prohibition on granting tax exemptions, as well as tax or financial incentives and advantages relating to ISS, including tax base reductions and presumed credits, rendering null and void any law or municipal act non-compliant with the above-mentioned provisions, with the exception of construction services and road, subway, rail and waterway collective passenger services within municipal boundaries;
► The expansion of services included in the list attached to Supplementary Law nº 116/2003, to include, among other services:
(i) the processing, storage or hosting of data (including cloud computing services);
(ii) the development of electronic games developed not only for computers, but also for tablets, smartphones and similar devices;
(iii) making available audio, video, image and text content for download and streaming;
(iv) the surveillance and monitoring of livestock (including pet hotel and lodging services, among others);
(v) municipal transportation services, which, in our opinion, includes transportation services engaged through mobile applications; and
(vi) the insertion of texts, drawings and other advertising and publicity contents, in any media (including web pages), except in books, newspapers, periodicals and in free sound and imaging broadcasting services, in contrast to advertising services, already subject to taxation by ISS and which imply creative activity.
The provisions set forth in LC nº 157/2016 must be incorporated by the internal legislation of each Municipality and the Federal District, and those that entail tax increase or imposition of new taxes will only become effective in the following year and in 90 (ninety) days as from its publication. With regard to the provisions related to the revocation of exemptions and fiscal benefits, LC nº 157/2016 granted one year for Municipalities and the Federal District to adapt their legislation accordingly. In this regard, such provisions will only become applicable as from January 2018.