ISS Excluded from the PIS/Cofins Tax Base: What to Do If Your Company Has Not Yet Taken Legal Action

The Brazilian Supreme Federal Court (STF) ruled today that ISS (municipal services tax) must be excluded from the calculation base of PIS and Cofins contributions. For companies that have not yet challenged the issue in court, the question now is whether it is still possible to recover amounts paid over the past five years. The answer depends on the prospective limitation of the ruling’s effects, which has yet to be determined, and may hinge on legal action taken in the coming days.

The Ruling

In its judgment of Theme 118 under the general repercussion system (RE 592,616), on 21 October 2026, the STF extended to ISS the reasoning previously applied to ICMS (state VAT) in the landmark case known as the “Tax Case of the Century”. The municipal tax merely passes through service providers’ accounts and therefore does not constitute their own revenue subject to PIS and Cofins contributions. The ruling is binding.

The Outstanding Issue: Limitation of the Ruling’s Effects

The Court has yet to determine the date from which the ruling will take effect. This issue will be decided when the Court considers motions for clarification (embargos de declaração), for which no hearing date has been set.

The proposal presented to the full Court establishes the publication date of the judgment minutes as the cut-off date, which typically occurs within a few days. It would preserve judicial actions and administrative proceedings pending as of that date. In the ICMS case, however, the cut-off date adopted was the date of the judgment on the merits itself.

Possible Scenarios

As PIS and Cofins will be replaced by CBS on 1 January 2027, the periods following the cut-off date will, in practice, cover only a few months. For companies that have not yet taken legal action, the value of the claim lies in recovering amounts paid in the past.

Our Recommendation

For service providers that have not yet challenged the issue, we recommend urgently assessing whether to initiate legal proceedings, preferably before the publication of the judgment minutes. This assessment should take into account the amount of ISS paid over the past five years and the uncertainty surrounding the limitation of the ruling’s effects.

Under the most favourable scenarios, taking legal action would secure the right to recover amounts previously paid. However, if the Court adopts a cut-off date preceding the filing of the claim, those amounts may fall outside the scope of recovery.

BVA’s Tax team remains available to assess the specific circumstances of each case.