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In brief

On 24 February 2021, the Brazilian Supreme Court (“STF“) finalized the trial of Direct Unconstitutionality Actions 1,495 and 5,659, which addressed whether software-related transactions should be imposed with municipal service tax (“ISS“) or VAT state tax (“ICMS“).

After garnering a majority of votes, STF decided to exclusively levy ISS to such transactions, regardless of the form of commercialization and type of software (if off-the-shelf or customized).

In depth

The STF decision is expected to produce ex-nunc effects, going forward.

With respect to past transactions, the so-called “modulation of effects” took into account various aspects:

  1. Taxpayers who collected only ICMS – The taxpayer will not have the right to recover the ICMS collected and the municipality will not be able to charge ISS, as it would qualify as double taxation.
  2. Taxpayers who collected only ISS – There will be confirmation of the validity of the ISS payment and prohibition of the ICMS being charged by the states.
  3. Taxpayers who did not collect ISS nor ICMS – There is the possibility of charging only ISS, subject to the statute of limitations.
  4. Pending lawsuits filed by taxpayers against the states or by the states against taxpayers aiming at the collection of ICMS – Judgment must be carried out in accordance with the STF’s understanding (ISS levy only), with the possibility of recovering the ICMS in cases where this right is object of the lawsuits.
  5. Pending lawsuits filed by taxpayers against the Municipalities or by the Municipalities against the taxpayers – Judgment must be made according to the STF’s understanding (ISS levy only), except if the taxpayer has already paid the ICMS.

The parties might still oppose a motion for clarification against the decision.

We remain available to discuss the effects of STF decisions.

Portuguese version


Adriana Stamato is a Partner in Baker McKenzie's Sao Paolo office.


Iury Lobato is an Associate in Trench, Rossi e Watanabe Advogados Brasilia office.


Marcelle Silbiger is an Associate in Baker McKenzie's Sao Paolo office.