This content is from: Brazil

Internet advertising entities facing legal uncertainty

The internet advertising industry faces the greatest challenges of all searching for legal centainty when defining whether to collect the municipal tax on services (ISS) or the communication services tax defined by the states (ICMS) on the revenues arising from these services.


This is mainly due to the fact that taxpayers directly (if they are advertising services providers) or even indirectly connected to internet advertising (such as agents or intermediaries) have been dealing with both municipal authorities and state authorities defining that their activities are subject to their share of competence to tax.

Although controversy and disputes between ISS and ICMS are common, when dealing with information techlology there is always space for more controversy and new conflits of competence to take place. This is because, according to the legal certainty principle, taxation should be specifically defined, for each taxable event, and in many of the IT services, such as advertising, no legal provision has been that specific, giving room to a lot of interpretation by tax authorities.

The ISS is charged on the listed services described by law, among which there are a lot of definitions that could be strictly or remotely connected to internet advertising. The aforementioned list comprises from any intermediation, comission, agency or representation services to other related to advertising more as preparatory activities for advertising  such as data processing, software licensing, maintainance of internet pages, and graphic design composition for advertising etc. Those services are taxed in a range from 2% to 5% of the service depending on the municipality where the service provider is located.

Although the specific item of advertising as a vehicle is not listed, the municipality of São Paulo has repeatedly issued rulings in the last three months confirming that advertising and also internet advertising should be subject to ISS.

On the other hand, the state of São Paulo has issued tax assessments, in the past years, to relevant companies of the internet advertising market charging 25% ICMS, interest and penalties, considering that these companies (no matter their business model, or direct indirect connection to advertising) actually perform communication services without collecting ICMS.

Note that internet advertising has been around for a while, and to this respect neither federal constitution, nor these facts or ICMS legislation have changed since 1988 to justify the rise of those assessments. Thus, if everything remains the same, it seems that we are facing some new ideas from tax authorities, without the legal certainty that should precede them.

Internet advertising companies tend to take this controversy to Supreme Court. Some of them are already in judicial courts, some still in administrative level. All the judicial court cases have decisions or preliminary injuctions in favour of the taxpayer to avoid ICMS. Hopefully, legal certainty will prevail, and new ideas will be strictly connected to the new rules based on the due process of law.

Renata Correia Cubas is a partner focused on indirect taxation in Mattos Filho advogados.  

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