Supreme Federal Court Excludes ISS from the PIS and COFINS Tax Bases

The Federal Supreme Court (STF) concluded its review of Constitutional Appeal No. 592,616 (Issue 118 of general repercussion) and ruled, by a vote of 6 to 5, that the ISS is not included in the tax base for PIS and COFINS.

The prevailing view was that the amount corresponding to the ISS received by the service provider does not constitute revenue, but rather a simple financial inflow that merely passes through the provider’s assets and accounting records without any definitive character.

The decision extends to the municipal tax the logic of the so-called “theory of the century” (Topic 69), which excluded the ICMS from the tax base for these contributions.

Who benefits from the decision?

The decision applies to service providers subject to the ISS that pay PIS and COFINS, under both the cumulative and non-cumulative regimes. For these companies, the ISS is no longer included in the revenue on which these contributions are calculated.

What is the effect of the decision following the tax reform?

Effective January 1, 2027, with the start of the tax reform’s implementation, the CBS will replace the PIS and COFINS. In addition, Complementary Law No. 214/2025 (Art. 12, § 2) expressly excluded the ISS from the calculation basis for the IBS and the CBS throughout the transition period, from 2026 to 2032, at the end of which the ISS itself will cease to exist.

Thus, the practical effect of the decision lies in the past: it applies to PIS and COFINS due through the end of 2026, and the excess amounts collected over the past five years are, in principle, eligible for refund.

Modulation of Effects: The Main Point of Attention

The STF has yet to determine how the effects of the decision handed down on October 21 will be modulated; based on that, it will be possible to confirm how much of the past can be recovered. In Case No. 69, the Court upheld only those lawsuits filed up to the date of the decision on the merits. If this logic is applied again, companies that did not file individual or class-action lawsuits will not be entitled to a refund.

How LBM Advogados Can Help

The tax team at LBM Advogados can advise service providers on analyzing the effects of excluding ISS from the PIS and COFINS tax bases, evaluating legal measures to preserve their rights before the scope of the ruling is defined, and recovering overpaid amounts, taking into account the applicable deadlines. [Contact our team]

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