FORA ICMS Project - History and Decisions
Historic decision by the STF: ISS IS INCURRED (and ICMS is not levied) on software operations
Judgment of ADIs Nos. 1945-MT and 5659-SP on 11/11/2020 declares the unconstitutionality of ICMS in licensing or assignment of use of software
Members can celebrate the most significant sectoral achievement in the 34 years of ABES’ existence, due to the favorable result for the sector in the judgment by the STF, on 11/11/2020, which declared the unconstitutionality of rules requiring ICMS in software operations, reestablishing legal certainty in these operations in Brazil.
Taking as a reference the data from the ABES/IDC study – which indicates a turnover of US$ 10 billion for the software sector in 2019 – a decision in favor of ICMS would have been disastrous. Considering the rate of 18%, software companies would have to collect approximately US$ 1.8 billion annually; Even if the ICMS rate of 5% were taken, the tax would reach around US$ 500 million annually. On the other hand, when we use the average ISS of 2.9% as a base, it is estimated that the sector collects US$ 290 million annually from municipalities. It means that the court decision obtained represents an annual tax saving of between US$ 210 million and US$ 1.5 billion. If it were the other way around, we would have a tax increase of between 70% and 600% in relation to the current collection.
Departing from the entity's pattern of behavior - which historically survives with resources coming from monthly association contributions - the numbers presented in the previous paragraph encourage us to request that ABES Associates participate in efforts to raise extraordinary contributions in the amount of R$ 800,000.00, necessary to cover the deficit with legal expenses, actions and events held as part of the Fora ICMS Project, which we detail below, without impacting the level of associative services. It took a few years with a team of lawyers hired and mobilized to monitor the issue in court until we reached the trial and oral defense of the sectoral position in the STF.
Auspicious achievements
Since the beginning of the 90s, a strong tax conflict has arisen between software companies and the Government of the State of São Paulo, regarding the requirement of ICMS in operations with computer programs.
After judicialization of the issue – sponsoring five lawsuits by members to remove the ICMS requirement on software – and implementation of political-administrative actions (SC publishes law declaring the “non-incidence of ICMS”). The first big victory came in 1992, when ABES negotiated with the Governor of São Paulo, FLEURY, the issuance of Law No. 8,198/92 – granting ICMS amnesty on past operations – and Decree No. 35,674/92, establishing that, in operations with software, whether customized or not, the ICMS would be calculated on a calculation basis corresponding to twice the market value of your IT support. The Federal District and important states (including RS, PR, SC, MG) followed São Paulo's example, issuing rules to eliminate the charging of ICMS on software, or to require the tax only on the magnetic support value.
Another major achievement of ABES, increasing legal security, occurred in 2003, with the publication of Complementary Law No. 116, listing practically all IT services (items 1.01 to 1.08) as subject to ISS – Tax on Services. including the development of custom software (item 1.04 of the list) “licensing or assignment of right to use” (item 1.05), how the economic exploitation of software called “standardized”, aimed at infinite users. When appearing on the ISS list, the activity is automatically excluded from being taxed by ICMS.
2015: the tax war resurfaces
Peace came to an end almost three decades later when, motivated by a questionable decision by the STF in which, when considering a precautionary request in ADI 1945-MT, the Court refused to declare the unconstitutionality of law No. 7098 of Mato Grosso – which required ICMS in software operations, even if downloaded. After this decision, the States envisaged the possibility of demanding ICMS in software operations. Led by São Paulo, through work with Confaz, ICMS Agreement nº 181 was published on 12/28/2015 and, on 09/29/2017, ICMS Agreement nº 106, setting ICMS of 5% on the value of operations with software. Such Confaz resolutions led to the publication of decrees in São Paulo (61,791/16 and 63,099/17) and in several other states, requiring ICMS in software operations.
In an unprecedented work by several sectoral associations, the São Paulo Court of Justice issued at least four decisions on the merits, declaring Decree 63.099/17 and Agreement nº 106 illegal. During the validity of such TJPS decisions, the Government of São Paulo was not authorized to fine, nor even to inspect any Associated company in relation to software operations, even if standardized.
Project "OUTSIDE ICMS!”
In unison, the IT sector – led by ABES – became aware that effective legal certainty in relation to the taxation of software operations in Brazil would only be achieved through decision on the merits, by the STF when judging Direct Constitutionality Action (ADI) or when judging action of another type for which it is declared general repercussion, deciding that the ICMS is unconstitutional and/or excluding the licensing or assignment of the right to use computer programs from the ICMS incidence hypotheses. To this end, at the beginning of 2018, ABES launched the “FORA ICMS Project”, installed the Group and elected its coordinators.
The group identified four actions pending decision by the STF, with the scope of analyzing the incidence of ISS or ICMS in software operations (ADI nº 5576-SP; ADI nº 5659-MG; ADI nº 1945-MT and RE nº 688.223 ( with general repercussion) and prepared the Project's budget. At this time, ABES launched a campaign to raise financial contributions to cover legal fees. Upon reaching the provision of sufficient additional contributions to cover 82% of the budget, the entity authorized the execution of the projects. legal services with the STF.
A very refined strategy was designed, which began with carrying out a selection process among several law firms of former STF ministers specialized in acting in that court, when we identified the Ayres Britto firm as the most suitable to monitor the progress of the actions in the superior court. (with the presentation of petitions, memorials, visits to offices, oral arguments at a hearing), including the generation of material for the press, holding of seminars and various other activities with the aim of making the STF's ministers and advisors reflect on the message that the Brazil's digital transformation was in the hands of the Supreme Court!
The purpose has been achieved: it is time to contribute financially
A few days ago, two of the four actions selected by the project entered the trial phase by the STF. Although the vote of Minister Nunes Marques, who asked for a review of the process, is still missing, the score is already at 7 votes in favor of the ISS incidence thesis in operations with software, whether standardized (customized or not), or made to order and regardless of whether the transfer of use occurs via download or through access to the cloud.
Both actions were judged valid, and in ADI 1945-MT the Mato Grosso Law was declared unconstitutional; and in ADI 5659-MG, the attacked norms were interpreted in accordance with the Federal Constitution, excluding the licensing or assignment of the right to use computer programs from the ICMS incidence hypotheses.
The time has come to supplement the payments owed to the law firm that led the Project under the signed contract. At the beginning of the Fora ICMS Project, several associated companies made contributions and/or were obliged to participate in the apportionment of the “success fee”. At the end of this statement there is a list of contributors who made the financial contributions that allowed the project to be financed up to the current stage, to which we convey our sincere thanks on behalf of the association and on behalf of the entire software sector. There remains, however, one deficit of R$ 787,449.22 (already including the update of the contractual value), an amount that ABES hopes and believes will obtain sponsorship from its members through extraordinary contributions.
In this way, we would like to count on an extra financial contribution from your company so that the entity can cover the expenses related to the victory achieved for the sector. Your participation is essential to avoid the negative economic impacts on your company that this new tax burden represents.
There is no fixed minimum contribution amount, as it is a spontaneous contribution. Each company defines the amount of its contribution. Even companies that already contributed when the project was launched in 2018 can participate in this new allocation.
If you would like to contribute, click the button below to access the Contract of adhesion, which must be completed and sent to email andreia.braga@santoscortereal.com.br.
TAXPAYERS WITH FINANCIAL CONTRIBUTIONS SINCE THE LAUNCH OF THE PROJECT
- ABRADISTI – ASS. BRAZILIAN DISTR. OF PRODUCTS AND SERVICES. OF TECHN. OF INFORMATION
- ARROW ECS BRASIL DISTRIBUIDORA LTDA.
- BENTLEY SYSTEMS BRASIL LTDA
- BOXNET SERV. OF INF. LTDA
- BRASOFTWARE INFORMÁTICA LTDA
- CLM SOFTWARE COMERCIO IMP. AND EXP. LTD
- COMPAREX BRASIL SA
- CSC BRASIL Sistemas Ltda.
- EXCHANGE INFORMÁTICA LTDA
- FRAZZILIO E FERRONI INFORMÁTICA
- FS SECURITY SERVICES OF TECNOLOGIA SA
- INFOX COMÉRCIO AND SERVICE PROVIDER. LTD
- LEVEL UP INTERACTIVE LTDA
- MAXETRON – SERV. TECH INF. LTDA
- MICROPOWER COM. DESIGN SOFT. LTDA
- MICROSOFT DO BRASIL IMPORTAÇÃO E COMERCIO DE SOFTWARE E VIDEO GAMES LTDA
- NC GAMES & ARCADES
- OMNILINK
- RIOSOFT (CIA BRASILEIRA DE SOFTWARE E SERV. LTDA)
- SAWLUZ METODOLOGIA APPLIED EM INFORMÁTICA LTDA
- SCI TECNOLOGIA DA INFORMAÇÃO LTDA
- SND DISTRIBUICÃO DE PRODUTOS DE INFORMATICA S/A
- SOFTPLAN PLANEJAMENTO E SISTEMAS LTDA
- SOFTWARE EXPRESS INFORMATICA LTDA
- COMMERCIAL AND SERV SOFTWAREONE. DE INFORM.LTDA
- TAGGEN SISTEMAS DE INFORMAÇÃO LTDA
- TD SOLUÇÕES ADVANCED DE TECHNOLOGIA BRASIL LTDA
- ALL EARS SYS. OF INF. LTDA
- TQS INFORMÁTICA LTDA.
- WAY2 TECHNOLOGY SERVICES SA
DECISION IN ADI 1945
Decision: After the vote of the Minister Dias Toffoli, who accompanied Minister Cármen Lúcia (Rapporteur) regarding the harmfulness of direct action in relation to art. 3rd, § 3rd, of Law No. 7,098/98[1] of the State of Mato Grosso and the lack of knowledge of the action regarding arts. 2nd, § 3rd[2]; 16, § 2[3]; and 22, sole paragraph[4], of the same law and, on merit, differed in part from the Rapporteur, in order to judge the direct action partially valid, declaring the unconstitutionality (i) the expressions adhesion, access, availability, activation, qualification, signature and even if preparatory, contained in art. 2nd, § 2nd, I[5], of Law No. 7,098/98, wording given by Law No. 9,226/09; (ii) of the expression, observing the other criteria determined by the regulation, present in the art. 13, § 4[6], of Law No. 7,098/98; (iii) of arts. 2nd, § 1st, VI[7]; and 6th, § 6th[8], of the same law, modulating the effects of the decision to make it effective from the date of publication of the trial minutes, in what was accompanied by Ministers Alexandre de Moraes, Roberto Barroso, Rosa Weber and Ricardo Lewandowski; of Minister Gilmar Mendes' vote, which declared the partial loss of the object of the action in relation to § 3 of art. 3 of Law No. 7,098 of the State of Mato Grosso, following, on this point, the Rapporteur, and, on the merits, declared the unconstitutionality of the expression observing the other criteria determined by the regulation, present in § 4 of the art. 13, as well as the entire content of the sole paragraph of art. 22, both of Law No. 7,098 of the State of Mato Grosso, also declaring the unconstitutionality of § 2 of art. 2nd of Law No. 7,098[9], as amended by Law No. 9,226; and the vote of Minister Marco Aurélio, which stated that the request was prejudiced in relation to article 3, § 3, inadmissible the action in relation to arts. 2nd, § 3rd, 16, § 2nd, and 22, sole paragraph, and deemed the request formulated in the action partially valid to declare the unconstitutionality of arts. 2nd, § 1st, VI[10] and § 2; 6th, § 6th[11]; and 13, § 4, failing to modulate the effects of the decision, Minister Luiz Fux (President) requested a view of the case. Plenary, 04.11.2020 (Session held entirely via videoconference – Resolution 672/2020/STF).
GRADES
[1] Article 3 The taxable event is considered to have occurred at the time: § 3 Advance payment of tax may be required, as provided for in tax legislation, in relation to certain operations, services, activities or categories of taxpayers
[2] Article 2 The tax is levied on: § 3 On the portion of the onerous provision of communication services, referred to in section III of the caput and the previous paragraph, the tax is levied even if the service began abroad or outside the territory of the State.
[3] Art. 16 Taxpayer is any person, natural or legal, who carries out, regularly or in a volume that characterizes commercial purposes, operations involving the circulation of goods or the provision of interstate and intercity transport and communication services, even if the operations and services begin on the exterior. § 2 The provisions of item II of the previous paragraph also apply when the communication service is provided or initiated outside the territory of Mato Grosso.
[4] Art. 22 The replaced taxpayer is guaranteed the right to a refund of the amount of tax paid as a result of the tax substitution, corresponding to the presumed triggering event that is proven not to occur.
Single paragraph. To effect the refund, the regulation will provide for the form of proving the non-occurrence of the triggering event.
[5] Article 2 The tax is levied on: § 2 For the purposes of the provisions of section III of the caput, the following are also considered as onerous provision of communication services:
I – services provision of internet access, data and information transmission, membership, access, availability, activation, enablement, subscription, facilities, as well as other value-added services, or any others that improve or add new uses to the communication service, or that are required as a condition for its provision, although preparatory, regardless of the technology used or the name given to them;
[6] Art. 13 The calculation basis, for tax substitution purposes, will be: § 4 The margin referred to in paragraph c of item II of the caput will be established based on prices usually practiced in the market considered, obtained by survey, even if by sampling or through information and other elements obtained from entities representing the respective sectors, adopting the weighted average of the prices collected, observing the other criteria determined by the regulation.
Article 2 The tax is levied on: § 1 The tax is also levied on: VI – on operations with a computer program - software -, even if carried out by electronic data transfer.
[7] Art. 2 The tax is levied on: § 1 The tax also applies: SAW - on operations with a computer program - software -, even if carried out by electronic data transfer.
[8] Art. 6th The tax calculation basis It is: § 6 Integrates the ICMS calculation base, in operations carried out with a computer program – software – any other installment debited to the recipient, including IT support, regardless of its name.
[9] Gilmar Mendes did NOT declare the unconstitutionality of the art. 2nd, § 1st, VI and NOT declared the unconstitutionality of the art. 6th, § 6th, of Law No. 7,098 which said:
Article 2 The tax is levied on: § 1 The tax is also levied on: VI – on operations with a computer program - software -, even if carried out by electronic data transfer. Article 6 The tax calculation basis It is: § 6 Integrates the ICMS calculation base, in operations carried out with a computer program – software – any other installment debited to the recipient, including IT support, regardless of its name.
[10] Article 2 The tax is levied on: § 1 The tax is also levied on: VI – on operations with a computer program - software -, even if carried out by electronic data transfer. (Marco Aurélio DECLARED the unconstitutionality)
[11] Art. 6th The tax calculation basis It is: § 6 Integrates the ICMS calculation base, in operations carried out with a computer program – software – any other installment debited to the recipient, including IT support, regardless of its name. (Marco Aurélio DECLARED the unconstitutionality)
DECISION IN ADI 5659
Decision: After the Minister's vote Toffoli Days (Rapporteur), who considered the action partially damaged and, in the remaining part, deemed it appropriate to give art. 5th of Law No. 6,763/75[12]and to art. 1st, I and II, of Decree nº 43.080/02[13], both from the State of Minas Gerais, as well as art. 2nd of Federal Complementary Law No. 87/96[14] interpretation in accordance with the Constitution Federal, excluding the licensing or assignment of rights to use computer programs from the incidence of ICMS, modulating the effects of the decision to make it effective from the date of publication of the trial minutes, in what he was accompanied by Ministers Alexandre de Moraes, Roberto Barroso, Rosa Weber and Ricardo Lewandowski; the votes of Ministers Edson Fachin and Cármen Lúcia, who were aware of the action and considered it unfounded; the vote of Minister Gilmar Mendes, who judged the direct action to be partially impaired, following the Rapporteur on this point, and, in the remaining part, deeming the request unfounded; and the vote of Minister Marco Aurélio, which did not consider losses and deemed the request to declare incompatibility with the Constitution Federal Decree No. 46,877/2015[15] of the State of Minas Gerais and the partial unconstitutionality, without text reduction, of articles 2 of Federal Complementary Law No. 87/1996, 5 of Law No. 6,763/1975, and 1, I and II, of Decree No. 43,080, both of the State of Minas Gerais, removing licensing and the assignment of the right to use software, failing to modulate the effects of the decision, Minister Luiz Fux (President) requested a view of the case. Plenary, 04.11.2020 (Session held entirely via videoconference – Resolution 672/2020/STF)
GRADES
[12] Art. 5th The Tax on Operations Relating to the Circulation of Goods and on the Provision of Interstate and Intermunicipal Transport and Communication Services – ICMS – has as a triggering fact operations relating to the circulation of goods and the provision of interstate and intercity transport and communication services, even if the operations and services begin abroad.
[13] Article 1 The Tax on Operations relating to the Circulation of Goods and on the Provision of Interstate and Intermunicipal Transport and Communication Services (ICMS) focuses on:
I – the operation relating to the circulation of merchandise, including the provision of food or drink in a bar, restaurant or similar establishment;
II – the supply of goods with provision of services:
a – not included in the tax jurisdiction of the Municipalities;
b – included in the tax jurisdiction of the Municipalities and with express indication of the incidence of state tax, as defined in complementary law;
[14] Article 2 The tax is levied on:
I – operations relating to the movement of goods, including the provision of food and drinks in bars, restaurants and similar establishments;
II – provision of interstate and intercity transportation services, by any means, of people, goods, merchandise or valuables;
III – costly provision of communication services, by any means, including the generation, emission, reception, transmission, retransmission, repetition and expansion of communication of any nature;
IV – supply of goods with provision of services not included in the tax jurisdiction of the Municipalities;
V – supply of goods with provision of services subject to service tax, which is the responsibility of the Municipalities, when the applicable complementary law expressly subjects it to the incidence of state tax.
§ 1 The tax also applies to:
I – on the entry of merchandise or goods imported from abroad, by an individual or legal entity, even if they are not habitual taxpayers, whatever their purpose;
II – about the service provided abroad or whose provision began abroad;
III – on the entry, into the territory of the recipient State, of petroleum, including lubricants and liquid and gaseous fuels derived from it, and of electrical energy, when not intended for commercialization or industrialization, resulting from interstate operations, with the tax falling to the State where the acquirer is located.
§ 2 The characterization of the triggering event does not depend on the legal nature of the operation that constitutes it.
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