General Repercussion Theme No. Topic 118: STF Rules in Favor of Taxpayers on the Exclusion of ISS from the PIS/COFINS Tax Basis

On October 21, 2026, sitting in a Plenary Session, the Brazilian Federal Supreme Court (STF) concluded the judgment of Extraordinary Appeal No. 592,616 (General Repercussion Theme No. 118). The case addressed whether including the Municipal Services Tax (ISS) in the tax basis of the PIS and COFINS contributions is constitutional.

By a 6-to-5 majority, the Court upheld the opinion of the Reporting Justice, Justice Celso de Mello, and held that ISS amounts must be excluded from the tax basis of those contributions.

Grounds for the Decision

The dispute centered on whether ISS amounts fall within the concepts of “gross revenue” (faturamento) and “revenue” (receita). Under Article 195, item I, subitem "b" of the 1988 Brazilian Federal Constitution, these concepts define the scope of PIS and COFINS.

Not every financial inflow qualifies as gross revenue or revenue: the inflow must represent a definitive increase in the taxpayer's net worth. ISS is a mere inflow that passes through the taxpayer's accounting records without any definitive character. It is therefore not part of revenue or gross revenue, and cannot be included in the tax basis of the contributions.

The Plenary applied to this case the same ratio decidendi adopted in Theme No. 69 (the so-called "Thesis of the Century"), which concerned the exclusion of ICMS from the PIS and COFINS tax basis.

Accordingly, the Court established the following binding thesis:

"The amount corresponding to ISS does not form part of the calculation base of the PIS and COFINS social contributions, since ISS qualifies as a simple financial inflow that merely passes through the taxpayer's assets and accounts without any definitive character, under penalty of violating Article 195, item I, subitem b, of the 1988 Federal Constitution."

Limits on the Temporal Effects of the Decision

The modulation of the decision's effects remains pending. The STF will decide it when it rules on any motions for clarification (embargos de declaração). Until then, the temporal scope of the decision remains uncertain.

Our Tax team is available to assess how the decision affects your operations and whether amounts unduly paid can be recovered.

For further information on this Legal Update, please contact our Tax team.