South America's Largest City to Tax Exported Services

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By Ed Taylor

May 5 — A new municipal ordinance issued by South America's largest city, Sao Paulo, poses a tax threat to companies that export services, including several American firms.

The ordinance, Parecer Normativo SF No. 2, was published in the official gazette April 27 and effectively eliminates a tax exemption that has existed for companies that export services.

Brazil's municipal governments charge a tax on services, called the ISS, which they have routinely attempted to apply to the exportation of services. The courts have taken the position that if the effects of the services are registered abroad, the Brazilian provider cannot be taxed.

The ordinance from Sao Paulo, Brazil's business capital, however, requires the taxation of all services that aren't performed entirely abroad. It does not consider the delivery of a report prepared in Brazil to a foreign client or the shipment of equipment repaired in the country as the export of services.

Fully Executed

“The ordinance only exempts the payment of the ISS on services fully executed abroad,” attorney Ana Carolina Saba Utimati, a partner at Trench, Rossi and Watanabe Advogados, told Bloomberg BNA in an e-mail May 4. “Thus it is likely that companies that are not in this situation will be assessed by the tax authorities.”

Utimati added that with the new ordinance, “it is expected that the tax authorities will increase the audits related to this matter and the issuance of [ISS] tax assessments.”

Utimati and other attorneys told Bloomberg BNA there is no legal basis for the Sao Paulo ordinance, which they believe goes beyond existing legislation.

“The ISS legislation does not foresee that the service must be executed abroad to allow the ISS exemption. As a consequence, the ordinance may be challenged by taxpayers if they understand that their services should be characterized as an exportation of services under the law,” Utimati said.

According to attorney Eduardo Suessmann, a senior associate with Trench, Rossi and Watanabe Advogados, the ordinance will directly affect several American companies with subsidiaries in Sao Paulo.

“There are subsidiaries that are organized in Brazil only to provide marketing services to the international group,” he said in a May 4 e-mail to Bloomberg BNA. “We are also aware of shared service centers organized in Brazil to cover all Latin America providing back office services for all of the group. Another example are the pharmaceutical companies that research the use of drugs and send their findings to their headquarters located abroad.”

Suessmann predicted companies that have had favorable rulings on the taxation of their exported services in the past will now see those rulings reversed by the ordinance and “they will probably be audited and assessed.”

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at

To contact the editor responsible for this story: Rita McWilliams at

For More Information

The ordinance is at

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