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Brazilian government issues ancillary tax obligations for the municipal service tax

The continuous revisions to the TP Guidelines provide timely clarity

Carolina Romanini Miguel and Gabriel Caldiron Rezende of Machado Associados discuss the ancillary tax obligations issued by the Brazilian government to standardise the calculation and payment of the municipal service tax (ISS) on some services.

As previously discussed, Supplementary Law 157/2017 was published on December 30 2016, and substantially altered the general guidelines of the ISS, established by Supplementary Law 116/2003.

As a rule, the ISS is payable to the municipality where the establishment providing the service is located. However, due to the changes brought by Supplementary Law 157/2017, regarding the following services, the municipality entitled to charge the ISS is the one where the service receiver is domiciled:

Group or individual medical care plans and agreements for the provision of medical, hospital and dental assistance and similar services;

  • Other health care plans that are fulfilled by means of third parties, contracted, accredited, in cooperation, or only paid by the plan operator upon indication of the beneficiary;

  • Medical and veterinary care plans;

  • Administration of any funds, consortium, credit, or debit cards and similar, client portfolio, post-dated checks and similar; and

  • Leasing of any assets, including assignment of rights and obligations, replacement of warranty, amendment, cancellation and registration of contracts, and other leasing-related services.

According to service providers, considered as the ISS taxpayers, this change results in complex and expensive tax compliance procedures for the suitable calculation and payment of the ISS levied on the provision of such services, especially considering that (a) there are more than 5,500 Brazilian municipalities with power to enact ISS laws, and (b) there is no clear definition of service receiver. 

Due to these difficulties, the rule that changed the municipality entitled to charge the ISS levied on the services listed above has been challenged before the Federal Supreme Court (STF) by means of Unconstitutionality Declaratory Action (ADI) 5835. On March 23 2018, the legal effects of Supplementary Law 157/2017 were suspended by a preliminary injunction. Therefore, while this decision is valid, the ISS levied on those services is due to the municipality where the provider is established.

Although the changes provided by Supplementary Law 157/2016 are suspended by the injunction granted in ADI 5835 – the merits of which are still pending judgment – the federal government published on September 24 2020, Supplementary Law 175/2020, which intends to provide instruments for inspection and collection of ISS to the municipalities where the receiver of the abovementioned services are domiciled.

Supplementary Law 175/2020: 

  1. Defines the receiver of the aforementioned services to identify the municipality to where the ISS should be paid; and

  2. Establishes that the ISS related to the services described above will be declared by means of an electronic system, standardised throughout the national territory, which will be developed by the taxpayer, individually or together with other taxpayers, according to layouts and standards defined by the Management Committee of Ancillary Obligations (CGOA) of the ISS.

Municipalities must provide in the system the applicable tax rates per period, files of the ISS legislation, and bank information for the payment of ISS. An important point is that the municipalities must ensure that the data they provide in the system is correct, and they cannot impose penalties on taxpayers in case of omission, inconsistency, or inaccuracy of such data.

The CGOA will be responsible for regulating the ancillary tax obligation of the services in matter and will be composed of five representatives of state capitals and non-capital municipalities. Furthermore, the CGOA will have a technical committee, in which representatives of taxpayers of such services will also participate.

To reduce the substantial loss of revenue of the municipalities where the main health insurance, fund management and leasing companies are established, it has been established that the ISS related to such services be shared between the municipality of the location of the provider (entitled to receive the tax) and the municipality of domicile of the receiver of these services (new municipality entitled to receive the ISS), as follows:


Service Provider Municipality 

Service Receiver Municipality 










Although these rules aim at simplifying the ISS tax compliance, taxpayers are worried about their application, as it may result in a substantial increase of compliance costs to implement the new system and to calculate and pay the ISS to several municipalities.

Also, the effectiveness of Supplementary Law 175/2020 still depends on the appointment of members of the CGOA to define the system’s layout, which is not likely to happen until January 2021. In any case, even if the layout is defined by the end of 2020, it is most likely that companies will have little to no time to develop the system, and municipalities might not be able to timely provide the data required.

Considering that taxpayers may not have time to comply with these tax obligations, the Supplementary Law provides that, regarding the months of January, February and March 2021, the ISS payment and the corresponding ancillary obligation of the new system may be fulfilled until the 15th (fifteenth) day of April 2021, without imposing any penalty. Nevertheless, interest corresponding to the interbank interest rate (Selic) is applicable and likely to be charged.

It remains to be seen whether the main purpose of Supplementary Law 175/2020 – which is to establish new ancillary obligations to enable the inspection and collection of ISS by the municipality of domicile of the receiver of such services – will be met. This is because the levy of ISS based on the rules of Supplementary Law 157/2017 depends on the decision to be rendered by the STF in ADI 5835. These measures may trigger unnecessary costs and difficulties for taxpayers to bear.

Carolina Romanini MiguelT: +55 11 3093 4810E:

Gabriel Caldiron Rezende T: +55 11 3093 4692E:

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