Tax on Services and the export of services
By Daniela Floriano and Carlos Eduardo Gonçalves
Amendment No. 37/2002 to the Constitution changed article 156, ‘II’, paragraph 3 of the Constitution to determine that the minimum and the maximum tax on services (local acronym ISS) rates, the general terms and conditions applicable to exemptions, incentives and tax benefits, and – mainly – the cases of exemption in relation to the export of services are to be set in a Supplementary Law.
Soon after that, Supplementary Law No. 116/2003 (article 2, ‘I’) was enacted, prescribing that the ISS was not to be levied on the export of services.
More than 10 years have passed since the enactment of such Supplementary Law and defining what is to be deemed export of services has not become any easier and still sparks intense debates. And all because of the difficult task of understanding what the Law means by “verifying the results”, an expression closely connected to the concept of “usefulness” of the service provided.
Simply put, if the result of the service is verified abroad, i.e., if the service is only “useful” abroad, then it is the case of an export of service. But this definition is not enough. Taxpayers must have with them the tools that will prove that the service was actually provided abroad and be sure that the terms and conditions of the service agreement are clear about it.
In line with the decisions recently issued by the São Paulo City Tax Council, a clause determining that the results were to be used only by the person located abroad, who hired the services, is a good example of an objective contractual provision that allowed for the event to be deemed a provision of services abroad and, consequently, for the tax exemption. This is why we recommend that companies that provide services always review the service agreements they sign so to assure the tax on services exemption.