The Rio de Janeiro Municipality recently enacted a set of new regulation aiming to settle discussions with taxpayers regarding the imposition of  the Municipal Service Tax (“ISS”), over the assignment of non-exclusive seismic data, by Brazilian legal entities, which are authorized by the Brazilian Oil and Gas Agency (Agência Nacional do Petróleo – ANP) to gather and license such data, within a specific confidentiality period, under multi-client agreements.

Resolution No. 2,958/2017, altered the wording of Resolution 2,617/2010, to classify the assignment of non-exclusive seismic data under a new and specific item of the Rio de Janeiro list of taxable services (i.e., item No. 7.21.05, assignment of non-exclusive seismic data by legal entity authorized by the ANP to gather seismic data in Brazil).

In parallel, the Municipality also enacted Law No. 6,264/2017, which provided that such activities should be taxed by the ISS at a 2% tax rate.

To avoid questioning by taxpayers as well as to gather support from the industry, Law No. 6,264/2017 also provided a special payment regime, which is applicable for triggering events occurred until October 16, 2017, granting discounts of up to 60% and 80%, of ISS principal amounts and penalties/interest, respectively.

Please note that this discussion is not new. In effect, in the past years, the Rio de Janeiro Municipal tax authorities have been trying – with a certain level of difficulty – to assess taxpayers for not paying the ISS over the assignment of non-exclusive seismic data transactions, based on the argument that such activities classify under item 7.21 (“services related to the exploration of oil and natural gas fields”), of the list of taxable services, as provided by Supplementary Law No. 116/2003.

We highlight, however, there is case law in the Brazilian Courts (especially in the Rio de Janeiro State Court of Appeals) in favor of taxpayers to consider as undue the ISS levied on such activities, since they do not involve the provision of a service to licensee, and considering that such activities do not classify under item 7.21 of the list of taxable services, as provided by Supplementary Law No. 116/2003.

Although the Municipal tax authorities understand that this new regulation should settle past and future discussions on the matter, it is our opinion that no ISS should levy over non-exclusive seismic data licensing transactions, since, even though now specifically listed as a taxable service, such activities remain being performed with no intrinsic service component.