This month, the Treasury Department of the City of São Paulo released Normative Ruling SF No. 1/2016 about the Tax on Services (ISS) on the dissemination, provision and insertion of advertising and publicity. 

According to this Normative Ruling, the dissemination, provision and insertion of advertising and publicity are subject to ISS because such activities fall under item 17.06 from the List of Services in Section 1 of Municipal Law No. 13,701/2003. 

It is worth noting that item 17.06 has the same wording as item 17.06 of the List attached to Supplementary Law No. 116/2003, as follows: 

17.06 - Advertising and publicity, including sales promotion, campaign planning and advertising systems, preparation of drawings, texts and other advertising materials.

ISS would be levied in the event of dissemination, provision and insertion of advertising and publicity in paid or free radio and TV broadcasting, websites, Internet pages or electronic addresses on the Internet, and outdoor billboards. 

According to the Normative Ruling, no ISS will be levied on the dissemination, provision and insertion of advertising and publicity inserted in printed matter, such as the editorial body of books, newspapers and periodicals, due to the immunity set out in Section 150, VI, "d" of Brazil’s Constitution. The sole exception: publications printed with the sole purpose of disseminating propaganda and advertising. 

It should be stressed, moreover, that Section 2 of the said Normative Ruling overrules the previously issued Answers to Consultations – the understanding set out in the Normative Ruling is opposite to that of the older document, without notice to inquirers.

It is worth noting that under ISS rules, the service provider is the ISS taxpayer, but usually the service recipient bears the economic burden as this is included in the service price.

One controversial issue is about when such Normative Ruling goes into effect. Under Section 2, it is merely an interpretation of the current Law (item 17.06). Tax authorities in Brazil take the position that interpretative rules have retroactive effect. Therefore, the City of São Paulo could go back five years (statute of limitation) to charge ISS on these services rendered. 

Finally, it is important to note that the Department of Finance of the State of São Paulo understands that these are communication services, subject to the Tax on the Circulation of Goods, Interstate and Intercity Transportation Services and Communication Services (ICMS). That is, some services may have the potential to be taxed twice, which is contrary to Section 156, III, of Brazil’s Constitution. Thus, service providers must evaluate the exact nature of their service, in case they need to determine how to challenge the possible collection of both taxes.

Service providers impacted by this potential conflict of authority (state vs. city) may evaluate whether filing a preventive lawsuit to obtain certainty is an option. 

Alex Jorge is a partner and Paulo Takafuji is an associate in the Tax practice of Campos Mello Advogados, an independent Brazilian law firm.