Some of Brazil’s municipalities are trying to include the CBS and IBS in the base of calculation for the ISS tax. This move contradicts the constitutional transformation of consumption taxation in the country. Allowing these new taxes to expand the cumulative incidence of the ISS preserves a mechanism that is incompatible with the rationality of the reform. The unconstitutionality follows from the joint reading of non-cumulativity, neutrality, and other principles introduced by Constitutional Amendment 132/2023.
The constitutional framework of non-cumulativity
The starting point is article 156-A, § 1º, VIII, combined with article 195, § 16, of the Constitution. These devices guarantee the non-cumulativity of the IBS and the CBS, through compensation with the tax collected on acquisitions, observed constitutional exceptions. The credit technique serves to prevent taxation from accumulating along the economic chain and artificially burdening the organization of production.
This guarantee of non-cumulativity should be understood in a substantial sense. A restricted interpretation of credit recording can preserve the appearance of non-cumulativity while tolerating the reproduction of its contrary. If the inclusion of the CBS and the IBS in the ISS base causes an additional burden without the possibility of recovery through crediting, part of the charge remains definitively incorporated into the cost of the operation.
Read Also: Brazilian Governors Shun Senate, Prioritize State Control
What Reflective Cumulativity Means
This is what is called reflective cumulativity: the elevation of the burden of another tax resulting from the use of the values of the CBS and the IBS as components of its calculation base, without crediting capable of neutralizing the increase. The concept identifies a legal relationship determined by the intertwining of tax incidences on the same operation. The increase is produced by the adoption of a calculation formula that, even with the other elements of the reform, generates an undue repercussion on prices and the productive organization itself.
Consider, only to isolate this effect, an ISS base of R$ 1,000, a municipal rate of 5%, and R$ 100 of CBS and IBS incident on the operation. The inclusion of these R$ 100 would raise the ISS from R$ 50 to R$ 55. The additional R$ 5 would result exclusively from the collection of the new taxes, without an increase in the remuneration of the service. The eventual crediting of the R$ 100 in the CBS and IBS regime would not eliminate the R$ 5 required as ISS.
The ISS does not have a general system of compensation that absorbs this increase. The constitutional guarantee of non-cumulativity loses economic effectiveness if the value recoverable in the new regime can generate an irrecoverable obligation in the old one. In this perspective, non-cumulativity also limits the interactions between taxes that frustrate its purpose. The solution is to exclude the CBS and the IBS from the municipal base, without creating, by interpretation, ISS credits or compensation between tax species.
Why Literal Interpretation Fails
Arguments based on a simple literal interpretation need to be set aside. Article 156-A, § 1º, IX, and article 195, § 17, exclude the value of the IBS and the CBS from their own calculation bases, without mentioning the ISS. Article 133 of the ADCT excludes the ISS from the bases of the IBS and the CBS, without expressly establishing exclusion in the inverse sense, that is, the exclusion of the new taxes from the ISS calculation base. From this, one could hastily extract that the constituent supposedly admitted the inclusion of the IBS and the CBS in the ISS calculation base.
Read Also: Supreme Court validates Bolsa Família adjustment decree
This conclusion does not hold, as it attributes to the mere silence of a listing force sufficient to remove the other norms of the reform. That is not the case. The absence of a nominal prohibition does not equate, by itself, to constitutional authorization for an incidence. The exclusion follows from a systematic interpretation: the base segregation rules must coexist with the substantial effectiveness of non-cumulativity. Protection would be incomplete if it prevented accumulation within the new regime, but allowed this to feed an external cumulative charge on the same operations.
It would be excessive to sustain that all tax incidence on tax is forbidden. The tax reform, when authorizing cases of reflective cumulativity, did so expressly for the Selective Tax, in article 153, § 6º, IV. In the absence of similar authorization for the IBS and the CBS, the only compatible interpretation with the substantially non-cumulative structure of these taxes requires that their collection does not produce a residual burden incompatible with the principles that now govern the system. In other words, since the reform, the inclusion of taxes on consumption in the calculation base of other taxes on consumption has become the exception, and not the rule, and depends on express constitutional authorization.
This reading guides the application of article 7 of Law Complementarity 116/2003, which defines the price of the service as the base of the ISS. In light of the reform, this device must preserve the distinction between the remuneration of the provision and the amounts of the IBS and the CBS collected in the operation. Beyond the calculation on the outside of the IBS and the CBS, the exclusion of these new taxes from the ISS calculation base results from their conjugation with the new constitutional parameter of substantial non-cumulativity.
Read Also: Novo asks STF to bar Moraes from voting on Master
Tax Justice and Regressive Effects
The temporary subsistence of the ISS is not sufficient to make it immune to the constitutional norms introduced by EC 132/2023. Article 145, § 3º, reinforces this conclusion by imposing simplicity, transparency, and tax justice on the entire National Tax System, including taxes that remain in force during the transition. The application of these principles cannot be postponed until the extinction of the ISS.
Tax justice, in turn, prevents the demand for the new taxes from being taken as an additional manifestation of the economic capacity of the provider. The increase in ISS can reduce the business margin or be transferred to the taker, according to market conditions. When supported by the final consumer, it aggravates the cost of access to services and can accentuate regressivity. This effect deserves special consideration in view of article 145, § 4º, which guides tax alterations toward the attenuation of regressive effects.
Track Tax Decisions With JOTA PRO
The JOTA PRO Tributos platform monitors tax decisions and movements from the Carf, STJ and STF. Users receive a weekly tax summary by email every Friday.
