This is a question that may have different answers since the concept of exported services, as defined by Brazilian law, leads taxpayers – and tax authorities – into a gray area. The reason for this is that such legal concept is directly connected to a subjective element involving the interpretation of what is deemed (or understood) as a “result of a service”.
The ISS guidelines are set forth in the Federal Complementary Law no. 116/03 (CL 116/03) and based on such guidelines each Municipality must enact its own Municipal Law in order to perform the ISS collection.
Based on CL 116/03, services rendered by Brazilian companies or even imported services by Brazilian companies are subject to ISS. Exported services, however, are not taxed by ISS provided services are developed in Brazil and their results are verified abroad, disregarding the jurisdiction of the contractor.
The gray area derives from the definition involving the concept of “results verified abroad”. For example: a Swedish company hires a Brazilian architecture company to design a bridge to be built in Germany. In this case, debates involve what would be the result of the service rendered: the project sent to the Sweden contractor or the building of the bridge in Germany?
The majority of Brazilian scholars understands that the term ‘result’, as used by lawmakers, should be interpreted as the effect generated abroad, i.e., the fruition of the advantages by a non-resident that is the final and real beneficiary of the contracted services.
In this sense, considering the Brazilian scholars’ understanding, the result of the architect service would be verified in Sweden as the fruition of the service would be earned there. The building of the bridge would represent a different service.
According to recent judicial precedents involving ISS issued by the Brazilian Superior Court of Justice (STJ) the result of services should be unconnected with the actual rendering of services.
In this sense, the STJ understood that the verification of export of services occurs in cases where the service’s benefits are effectively earned abroad, i.e., in cases where the taxpayers were able to prove the fruition of the service performed abroad. STJ highlighted that the exemption should be based on the evidence presented by the taxpayer.
As a conclusion based on the present understanding of the Brazilian Supreme Court, we understand that a strong probative set of evidences provides greater opportunities to prove the export of services by Brazilian service providers and then the right to benefit from the ISS exemption. In case of lack of evidences, taxpayers may be exposed to tax assessments issued by Municipalities.