The Federal Constitution, in art. 156, § 3º, item II, provides that ISS does not levy over exportation of services.
The Complementary Law 116/2003, which provides on ISS, sets forth that ISS does not levy on exportation of services, in a manner consistent with the Federal Constitution.
However, in its art. 2, sole paragraph, the above-mentioned complementary law sets forth as an exception to the general rule that ISS does not levy over exportation of services, the cases where, cumulatively, (i) the services are provided in Brazil; and (ii) the results of services provided occur in Brazil, irrespective of whether payment is made by an entity abroad.
The laws of the Municipality of São Paulo (art 2 of Law 13,701/2003) provide that the ISS is not levied on exportation of services out of the country, unless the results of the services occur in Brazil.
As one may note, a crucial issue for the identification of whether ISS shall levy is the definition of results, which definition is a requisite for the determination of where they actually occurred.
Recently, the Municipality of São Paulo, in its Normative Opinion SF 02, as of 26 April 2016, brought a new definition for results, which led to a stricter view on what circumstances services qualify as exportation of services and, therefore, shall not be subject to services tax (ISS).
Indeed, pursuant to said normative opinion, which interpreted art. 2 of Law 13,701/2002, result is the performance of the service itself, independently of where corresponding benefits are verified. Verbis:
“Art. 1. For the purpose of the provisions of the sole paragraph of Article 2 of Law 13,701, as of 24 December 2003, “result” is deemed to be the actual performance of the activity described in the list of services of article 1 of Law 13,701, as of 24December 2003, being it irrelevant that possible benefits or consequences arising from such activity are enjoyed or verified abroad or by a person residing abroad.
§1. The result occurs here when the activity described in the List of Services is carried out in Brazil.
§2. Neither the mere delivery of the product of services, such as reports or communications, nor isolated procedures performed abroad that do not constitute an effective provision of services in foreign territory qualify as exportation of services.
§3. In case of long term continued services, the provision of services will be considered proportionately performed to the fulfilment of their monthly milestones.
Art. 2. This Normative Opinion, that bears an interpretative character, revokes all provisions in contrary to it, especially Consultation Opinions issued prior to the date of publication of this act, regardless of the communication to consultants.”
The understanding of the Municipality of São Paulo tax authorities is clearly restrictive if compared to the decisions issued by the State of São Paulo Court of Appeal on the matter, which sponsors the understanding that if the result of the services occurs overseas, the ISS will not be due (e.g., Appeal 10128372320148260053, Reporting Judge Monica Serrano, judged on 26 February 2015, by the 14th Public Law Chamber, published on 19 March 2015).
The interpretative rule issued by the Municipality of São Paulo, which legality is questionable, increases the risk of tax assessments to companies established in São Paulo and, perhaps, other municipalities may opt to follow a similar interpretation.