The best of the party is… not to pay Tax on Services (ISS)

The rental of spaces for events, such as weddings, has become an important revenue for many hotel chains in Brazil and abroad. The famous “destination weddings” are trendy. In Brazil, these celebrations are not only to the couple and their guests. Hotel’s owners have obtained favourable outcomes in courts regarding the non-taxation of ISS in the rental of their spaces for such events.

The understanding of superior courts is uncontested in the sense that the rental of movable property, since such is not classified as “to do” obligation, is not an activity subject to taxation by ISS. Some higher courts have applied the same reasoning to sustain the position that the rental of immovable property, such as the rental of spaces for events by the hotel sector, is also not subject to ISS.

Many hotels are unaware of the above higher court decisions and offer to taxation the total amount of their revenues. And depending on the preponderance of each activity performed by the hotels, improper taxation of its revenue from the rental of event spaces can be very costly.

There is still not a consensus from the higher courts regarding the incidence of ISS in such cases. Most of the decisions that are favourable to taxpayers come from the Rio Grande do Sul State Higher Court (TJ-RS). The São Paulo Higher Court (TJ-SP), however, maintains the understanding that the revenues from event space rentals by hotels are subject to taxation by ISS, especially when the preponderance of the activity performed is not differentiated.

Considering this scenario, this subject still needs to be further analysed by Brazilian courts. However, its already possible to say that the hotel sector has good chances to obtain success to not have their revenues taxed by ISS only because of the simple rental of its spaces for events.

By Júlia Malafaia Vituli Silva, associate at Candido Martins Advogados