The exclusion of ISS from the PIS and Cofins calculation basis may reduce tax liabilities and create room to recover amounts already paid.
On 21 October 2026, the Full Bench of the STF (Brazilian Federal Supreme Court) held that ISS (municipal tax on services) does not form part of the calculation basis of PIS and Cofins (federal social contributions levied on revenue). In practical terms, excluding ISS reduces the contributions payable by service companies, in accordance with the thesis set out in Topic 118 of general repercussion.
Why the exclusion of ISS matters to service providers
At present, a service company pays ISS to the municipality. At the same time, it calculates PIS and Cofins on the price charged, which already includes that tax. Under the thesis, ISS is removed from that calculation. The basis therefore shrinks and the contribution decreases.
The modulation of effects determines the date from which the thesis applies, and it has not yet been decided. In the ICMS (state tax on the circulation of goods and services) case, modulation only came in 2021. For that reason, the definition may take time.
In addition, the CBS (Contribution on Goods and Services, the new federal contribution) comes into force on 1 January 2027. Under Complementary Law No. 214/2025, ISS is likewise excluded from the basis of that new contribution. Accordingly, the greater benefit is likely to lie in recovering amounts paid over the last five years. Offsetting against other federal taxes would be possible after the contributions are extinguished.
How to assess your company’s situation
Each company has its own circumstances. For instance, a company that is already litigating the matter follows a different path from one that has never brought it before the courts. The applicable tax regime also weighs in the analysis.
It is our understanding that a case-by-case analysis must precede any application, including any application for interim relief in respect of current payments.
The next step is to quantify the ISS included in the calculation basis over the last five years. The open question is the modulation of effects, which will depend on the motions for clarification (embargos de declaração).
Read further legal news commented on by the firm and the articles by Moraes de Freitas Advogados.