STF Establishes Non-Incidence of ISS on Commissioned Manufacturing Activities

The Brazilian Supreme Court (STF) decided that the Tax on Services’ (ISS) non-levy on toll commissioned manufacturing activities, whenever these activities refer to the intermediary activities of a production cycle. The decision was issued by majority vote on February 26, 2025.

The Leading Case (Extraordinary Appeal no. 882,461) discussed the unconstitutionality of ISS on the transactions listed at sub-item 14.05 of the Supplementary Law no. 116/2003 (LC 116/2003), regarding the steel cut, in the context of intermediary activity.

The deciding vote from Rapporteur Dias Toffoli stated that ISS’s levy is unconstitutional when the product it is destined for manufacture or commercial use.

STF thus established the authority of the Federal Government and States to collect the Tax on Industrialized Products (IPI) or the Tax on the Circulation of Goods and Services (ICMS), depending on the purpose of the activity.

In addition, from the perspectives of prohibition of forfeiture and legal certainty, STF determined that federal entities must comply with a maximum rate of 20% of the tax credit charged for the collection of a default fine.

Finally, it’s notable that the decision’s effects were formulated to attribute ex nunc effectiveness (prospective effects), as the time of publication of the minutes of the judgment, excepting lawsuits filed up to that date and cases of double taxation.

For more information on this newsletter, please contact the Tauil & Chequer Advogados in association with Mayer Brown tax team.