Brazil’s Supreme Federal Court has ruled that municipal service tax (ISS) cannot be included in the calculation base for PIS and COFINS contributions. The 6–5 decision has general repercussions, requiring lower courts to apply the same interpretation in similar cases.
The Brazilian Supreme Federal Court (STF) issued a ruling that the service tax (ISS) is not part of the calculation base for PIS and COFINS, two federal contributions that fund social security.
The decision came on 21 October 2026, in Extraordinary Appeal (RE) 592616. The court recognised general repercussions under Theme 118, so lower courts must apply the same thesis to similar cases.
The case behind the ruling
Viação Alvorada Ltda., based in Porto Alegre (RS), challenged a decision by the Federal Regional Court of the 4th Region (TRF-4). That court had allowed ISS to be included in the PIS and COFINS base. The company argued that the municipal tax never becomes part of its assets. It also pointed to the STF’s earlier decision to remove the state tax on circulation of goods and services (ICMS) from the same base.
The appeal opened in a virtual session in 2020. It returned to the physical plenary in August 2024 and concluded that same month.
How the court divided
The court voted 6 to 5. Rapporteur Minister Celso de Mello (retired) led the majority, joined by Minister Luiz Fux, Rosa Weber (retired), Cármen Lúcia, Ricardo Lewandowski (retired), and André Mendonça. Fux broke the tie by following the rapporteur.
Fux argued that revenue cannot be confused with temporary inflows. Treating every incoming sum as taxable would erase that distinction and stretch the constitutional reach of these contributions. In his view, ISS adds to the municipality’s assets, not the company’s, so it cannot count as the company’s income.
Ministers Dias Toffoli, Alexandre de Moraes, Edson Fachin, Gilmar Mendes, and Luís Roberto Barroso (retired) lost the vote. They held that ISS belongs in the calculation base.
What happens next
The thesis binds lower courts. It rests on article 195, item I, letter “b” of the Constitution, as amended by Constitutional Amendment (EC) No. 20/98. The panel did not decide whether the ruling takes effect only from a future date. The full court could address that question if a motion for clarification is filed.
