The Federal Supreme Court (STF) started on Thursday (10/29), and should conclude in the session next Wednesday (11/4), the judgment of ADI 1945-MT and ADI 5659-SP dealing with the incidence of ISS or ICMS on software use licensing operations. ABES - Brazilian Association of Software Companies believes that the decision that will be emanated from the trial may compromise the process of Brazilian digital transformation, if the tax burden on software is increased, increasing its cost to Brazilian companies and society, which may cause difficulties access and reduce the level of competitiveness in the country, going against the proposal of the Organization for Economic Cooperation and Development (OECD).
“Software is one of the main components of digital transformation. If the Supreme Court's decision is to tax them through ICMS, and no longer ISS, this will cause a price increase in the market, directly impacting the implementation of the Brazilian digital transformation strategy and, consequently, reducing Brazilian competitiveness and further increasing more inequality in Brazil ”, says Rodolfo Fücher, president of ABES.
According to the OECD itself, the sector's forecast is -6.5% in GDP due to Covid-19. "Brazil should look for new engines of growth and digital transformation policies have a fundamental role in supporting the increase in productivity and the reduction of inequality", suggests the document that can be downloaded here.
During the last three decades, companies have been collecting the Service Tax (ISS) on these revenues, a procedure that is based on constitutional texts (art. 155, II and 156, III) and complementary legislation (LC nº 116, art 1st and item 1.05 and Law 9.609 / 98, art. 8 and 9). The entities of the information technology services sector, as well as the Municipalities (represented by ABRASF, which brings together the finance departments of the capitals), are very confident that the Supreme Court will ratify that the due tax is ISS - Tax on Services, not only because of the economic aspects mentioned above, but mainly because this is the current legislation.
It is important to understand that ICMS is the tax on transactions related to the circulation of goods and the ISS is levied on services of any nature. In this way, the ICMS could only apply to physical products, such as the floppy disk, which no longer exists. Nowadays, the commercialization of software happens through downloads, streaming or cloud.
“The importance of digital transformation for society in general is unequivocal. The Covid-19 pandemic period made the importance of digital services more evident, both for companies and government entities, as well as for citizens, providing that a multitude of activities such as shopping, telemedicine services, meetings, court activities, parliamentary and executive, among others, could continue to be carried out remotely ”, explains Fücher.
Even with significant progress in improving internet access in Brazil, the OECD points out that, until 2018, 23% of adults had never accessed the network. Also speaking of business, just over half of Brazilian companies, with 10 employees or more, had their own website in 2019.
“Following the same line, during the pandemic, hundreds of public services became digital and could be accessed over the internet, without the need to travel, queues and agglomerations, among them the payment of the installments of emergency aid, the release of unemployment insurance, CNH issuance and vehicle licensing. With the difficulty in accessing technology, performing these basic services will be increasingly distant ”, completes the president of ABES.
Software is the main component of this digital transformation and, in the event of a possible favorable decision to the ICMS, its tax burden may be increased, increasing its cost to Brazilian companies and society. Furthermore, the decision in this direction would imply a significant loss in the collection of ISS, which today provides essential resources to cities to meet the competences that the Constitution attributed to municipal federative entities.
About ABES
ABES (Brazilian Association of Software Companies) aims to contribute to the construction of a more digital and less unequal Brazil, in which information technology plays a fundamental role for the democratization of knowledge and the creation of new opportunities for all. In this sense, it aims to ensure a business environment conducive to innovation, ethical, dynamic and globally competitive, always aligned with its mission of connecting, guiding, protecting and developing the Brazilian information technology market.
Since its foundation in September 1986, ABES has sought to be relevant to its associates and a national and international reference in the technology sector. Currently, the entity represents approximately 2 thousand companies, which total about 85% of the revenue of the software and services segment in Brazil, distributed in 22 Brazilian states and the Federal District, responsible for the generation of more than 208 thousand direct jobs and an annual revenue around 63.7 billion in 2019.
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