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Digital Economy Lives a Fiscal Battle

The intense use and development of digital tools is transforming the consumption profile of society and this new profile of consumption has further aggravated the distortions of our tax system

article published in the Diary of the Great ABC

For some years we are living a revolution in economic relations. The intense use and development of digital tools is transforming the consumer profile of society, each day more consumer of services, with integrated solutions.

Instead of purchasing printers, many offices prefer to pay for printing to companies that give up the use of the equipment and take care of their maintenance. Instead of buying a car of its own, many people have resorted to individual transport (taxi and the like) or pay a monthly fee that gives them the right to use certain cars under certain conditions. Instead of acquiring a perpetual license to use software (as it was bought in bookstores), consumers prefer to pay monthly for the license and have all the updates to this and other software offered by the developer. Only three have been cited, but there are examples in this sense in almost every sector of the economy.

This new consumption profile has further aggravated the distortions of our national tax system. The consumption of goods and services in Brazil is taxed by five different taxes (ICMS, ISS, IPI, PIS and COFINS), which in turn makes taxation on consumption excessively burdensome, bureaucratic, unequal and irrational. This situation is aggravated by the fact that taxation on the consumption of State and Municipalities has been divided, with States taxing the consumption of goods and the Municipalities the consumption of services. And detail: States are required to allocate a quarter of the ICMS collection to the Municipalities, while the Municipalities are not obliged to distribute the ISS collection with anyone.

In this scenario, it is concluded that the change in the consumption profile is causing great concern in the States. An emblematic example of this is the unbridled strategy of states to maintain that software is digital goods taxable by ICMS, following a precedent of the STF issued twenty years ago (RE 176.626 / SP) to edit regulatory acts such as ICMS Agreement No. 106/2017. In the aforementioned precedent, the STF classified for tax purposes softwares in two categories: shelf software and softwares to order. Based on this division, the STF understood at the time that software on the shelf would be merchandise, while on-demand software would be the result of providing a service. By the strategy drawn by the States, softwares that are not products of order, are digital goods tributary by ICMS. </ Div>

I emphasize that when the facts analyzed by the Supreme Court in RE 176.626 / SP even made sense the aforementioned distinction, since at that time there was no regulation of the matter and little was known about the software market. With the advent of the Software Law (No. 9.609 / 98), the Intellectual Property Law (No. 9.610 / 98) and Complementary Law No. 116/03, this distinction completely lost its meaning because such Laws disciplined the software market and established , without distinguishing software from the shelf and order, that licensing or assignment of right of use of computer programs is taxable by the ISS and not by the ICMS (item 1.05 of Complementary Law 116/03).

This is just one of many examples that could be cited to demonstrate that, in the end, it is always the taxpayer and the citizen who bear the cost of distortions and the whole inefficiency of the national tax system. There are good initiatives for a deep and necessary tax reform – there are dozens of good tax reform projects being processed in the National Congress. What is lacking is motivation and political mobilization for ongoing tax reform projects to move forward and be discussed seriously and swiftly.

Leonardo Milanez Villela – Tax lawyer, partner of Correia da Silva Advogados

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Category: Leonardo Milanez Vilela, TAXATION

Tags: correia dasilva advogados, csa, digital, digital economy, economy, fiscal battle, tributary

Posted in: 14/06/2019

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Digital Economy Lives a Fiscal Battle

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