ISS and Uniprofessional Companies: the insecurity is not only in the pandemic

Many agree that 2020 could be a year to be forgotten – and look, we are still only in May and we have a long way to go in order to celebrate with hope the arrival of 2021.

But is the pandemic the on difficulty we are facing in 2020? Unfortunately, the pandemic is yet another insecurity that we are experiencing. Uniprofessional companies (made up of self-employed professionals such as doctors, dentists, veterinarians, accountants, lawyers, engineers, architects, economists and psychologists) remain insecure with the simple payment of a tax that, as a rule, should not bring any doubt as to the application of the legislation.

The Services Tax (ISS) may be required by the Municipalities and the Federal District when providing services and, in theory, should apply to the price of the services provided. This is what establishes the Federal Constitution that reserved to the complementary legislation the competence to provide for general rules for the creation of the tax.

The exception to this rule came about by virtue of the famous article 9, § 3, of Decree-Law 406/68 – yes, this legislation is still in force – accepted by the Federal Constitution of 1988 as a complementary law -, which reserves the right to uniprofessional companies to collect the ISS based on a fixed rate multiplied by the number of qualified professionals, regardless of being a partner, employee or non employee, who provide services on behalf of the company, assuming personal responsibility, under the terms of the applicable law.

And the logic of this exception is simple: to differentiate the taxation of the autonomous professional, that he / she carries out his/her activities personally – different from corporations -, observing the principle of his/her capacity to contribute and of equality, authorizing to give a different treatment to the unequal ones within the limits of his inequality.

It all seems simple and clear, doesn’t it?

In practice, however, the conclusion is different. Municipalities have been placing uniprofessional companies at risk for years, in an attempt to demand ISS calculated based on their monthly revenue, claiming they have a business nature, whose activity would be different from that exercised by self-employed professionals.

This practice of the Municipalities can be identified in the institution of a “Special Regime”, where the companies, to be considered uniprofessional, must fulfil certain illegal requirements established by municipal laws, demanding the formal recognition of this condition.

An example of the requirements that has left companies concerned is their form of incorporation, as the Municipalities understand that companies incorporated in the form of a limited liability could not be considered uniprofessional. Such a point needs to be assessed in the light of the Civil Code, so that a company incorporated by independent professionals who carry out their activities personally, responding professionally for their actions, are in fact uniprofessional and, regardless of having been incorporated as a limited liability company there is no way to disregard your nature.

It is clear that municipal requirements represent a serious risk to uniprofessional companies, since, when materialized in a tax assessment, their accumulated amounts – face value of the last five years, plus a fine and interest – may even exceed the company’s monthly expenses thus making the maintenance and continuation of its activities impossible, indispensable for its survival.

The good news in the midst of this chaos is that caselaw has always been on the side of uniprofessional companies, recognizing that their differentiated form of taxation is constitutional and legal and, especially, that Municipalities cannot demand the ISS calculated based on their monthly revenue. The point of attention here is the need to produce evidence that attests that business elements are not present in the company, ensuring the right to be taxed at the fixed rate.

The Federal Supreme Court (STF) has even established a thesis with general repercussions (Thesis 918) recognizing that the municipal law that establishes obstacles for the uniprofessional company to effect the payment of the ISS in a manner different from that defined by the Decree-Law is unconstitutional No. 406/68.

In spite of the fact that this precedent was appreciated in the scope of a law firm, we believe that it represents a strong argument for the other uniprofessional companies, since it reinforces the thesis that we defend that the municipal legislation does not have competence to create requirements different from those already defined by Decree-Law No. 406/68.

The Superior Court of Justice (STJ) was to rule on this matter during this month of May, but was removed from the agenda last week. We are waiting for further developments on the topic.

Currently, even living in a pandemic scenario, we believe that there are good and strong arguments for defence, with the hope that this caselaw will continue alongside uniprofessional companies, giving it the desired security so that they can continue exercising their activities without the risk to be illegally taxed.

By Tatiana Del Giudice Cappa Chiaradia, partner of Candido Martins Advogados
tributario@candidomartins.com.br