Brazilian Court imposes municipal tax on fund management services provided to foreign entities.

2021 May.25

On May 4th, 2021, the Brazilian Superior Court of Justice (STJ) determined that the taxation imposed by municipalities on the rendering of services (ISS) should be applied to companies that specialize in the management of funds from other entities, even if those entities and funds are located in foreign countries.

According to the ruling, the foreign location of the managed funds does not change the fact that the provision of management services occurred in Brazil, even if the payment for them came from abroad. A Brazilian managing company means that the services will produce income in Brazil, where the management company receives its payments.

No exportation of services, exempt from ISS tax under its national guidelines (Supplementary Law 116/2003), occurs in this situation, since the export only takes place when the results of the service are verified abroad. According to a Justice, the effects of the services provided by the asset manager are felt immediately in the Brazilian territory where the investment orders originated, and not where the fund was established.

The majority of the Superior Court of Justice agreed to this understanding. However, no precedent was established, and the results of the ruling are limited to the fund management company involved in the case. Other operations regarding the management of funds are fundamentally different, and thus shall be subject to a case-by-case analysis, to assess whether ISS tax will be due or not.