*By Dr. Saul Tourinho Leal
The Supreme Federal Court ended the historic judgment that found the ICMS levy on software services to be unconstitutional. The tax due is ISS and the story that illustrates this decision needs to be told.
The technology sector is made by a global logic that translates into two components: hardware and software. The first, physical, tangible and corporeal, changes ownership, constituting itself in the form of a commodity itself. On the other hand, software, which results from the formatting of ideas, is the power of data driven by human inventiveness, that fluid, intangible and incorporeal part that does not change ownership, but provides experiences that gain new uses. Software is a service, in fact.
Brazilian constitutionalism hands over the hardware tax jurisdiction to the states, with ICMS. The software is with the municipalities, through the ISS. This, expressly governed by Complementary Law no. 116/2003, has its own items (1.04 and 1.05) for computer programs, whatever the modality.
With the need to implement 5G technology and the arrival of the Internet of Things (IoT), everything will have the potential to become hardware. A refrigerator, a stove, a car, a clock, all will be able to integrate this vast digital economy. There will be no lack of tax base for ICMS. And when the tide comes in, all the rafts rise.
So why constitute, in defiance of the Constitution, an artificial concept that would throw this very dynamic sector – that of software – into the swampy terrain of the ICMS tax war, with all its parochial disputes deeply hostile to innovation? Therefore, it is fair to understand the decision of the STF as being one of the most important ever taken in tax matters in recent times.
The Supreme Court, after almost two decades, concluded the judgment of the direct action of unconstitutionality 1945 (Rel. Min. Cármen Lúcia) and of the direct action of unconstitutionality 5659 (Rel. Min. Dias Toffoli). He then replied, in ADI 5958 (Rel. Min. Cármen Lúcia) and in RE nº 688.223 (Rel. Min. Luiz Fux, Theme 590), in practice, the position previously taken by the majority of the plenary of the STF. According to a majority of 7 votes to 4, the tax due is the ISS. By reputing software as a service, the Supreme Court paved the way for the recognition of the inexhaustible strength of cities in building innovation in the provision of this service.
Talent is a service. The engines of innovation are in the metropolises. Florence gave us the Renaissance. Birmingham, the Industrial Revolution. At the time of Plato and Socrates, philosophy was being debated in an Athenian market. In the 6th century BC, Miletus, a wool-growing port in western Turkey, produced the first philosopher Thales and the father of European urban planning Hippodamus, whose grid-like plants were models for the Romans and countless cities. . The first important theater for the English-speaking audience was made by James Burbage in 1576. London had grown a lot in the 16th century and its bourgeoisie wanted entertainment.
For Edward Glaeser, “whether in the ornate shopping arcades of London, the slums of Rio, the skyscrapers of Hong Kong, or the dusty workplaces of Dharavi, our culture, our prosperity and our freedom are ultimately , gifts obtained by people living and thinking together”. For him, “this integration is the triumph of the city”[1].
This is a triumph that also needs to be understood from emblematic decisions such as this one, taken by the Federal Supreme Court, recognizing the legal nature of service to software and, as a consequence, making it levy the ISS.
[1] Glaeser, Edward. Urban centers: humanity's greatest invention: how cities make us richer, smarter, healthier and happier. Trans.: Leonardo Abramowicz. Rio de Janeiro: Elsevier: 2011, p. 267.
* Dr. Saul Tourinho Leal holds a Doctorate in Constitutional Law (PUC/SP), was an advisor at the Constitutional Court of South Africa and vice-president of the Supreme Court of Israel. He is a partner at Ayres Britto Consultoria Jurídica e Advocacia.
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